Monthly Archives: January 2023

The board’s role: building trust in a multi-stakeholder world

Posted by Maria Castañón Moats, Paul DeNicola, and Matt DiGuiseppe, PricewaterhouseCoopers LLP, on
Tuesday, January 3, 2023
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Maria Castañón Moats is Leader, Paul DeNicola is Principal, and Matt DiGuiseppe is Managing Director at the Governance Insights Center at PricewaterhouseCoopers LLP. This post is based on their PwC memorandum. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) and Will Corporations Deliver to All Stakeholders? (discussed on the Forum here) both by Lucian A. Bebchuk and Roberto Tallarita; Stakeholder Capitalism in the Time of Covid (discussed on the Forum here) by Lucian A. 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.

Trust matters

Expectations of the business community have reached a new high. Amid social and economic disruption, the public increasingly sees corporations as agents of stability. In fact, business is the most trusted institution in America, according to the Edelman Trust Barometer. That puts corporations above NGOs, the government, and media when it comes to trust. But trust is tenuous—it’s hardwon and easily lost. To maintain trust, companies must be intentional when it comes to thinking through their stakeholder relationships.

Meanwhile, there’s a growing realization that companies must consider a broader group of constituencies in a different way than they may have in the past. Executives increasingly recognize that to effectively serve shareholders, they need to manage for “the benefit of all stakeholders” as the Business Roundtable has stated. To do this, boards and directors need to have not only a grasp on who those stakeholders are, but also to know what those stakeholders expect from the company and to acknowledge that keeping their trust matters.

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National Security Creep in Corporate Transactions

Posted by Kristen Eichensehr (University of Virginia) and Cathy Hwang (University of Virginia), on
Tuesday, January 3, 2023
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Kristen Eichensehr is the Martha Lubin Karsh and Bruce A. Karsh Bicentennial Professor and Director of the National Security Law Center at the University of Virginia School of Law and Cathy Hwang is the Barron F. Black Research Professor of Law and the Director of the John W. Glynn Jr. Law & Business Program at the University of Virginia School of Law. This post is based on an article forthcoming in the Columbia Law Review.

When the Biden Administration released its Interim National Security Strategic Guidance in 2021, it asserted that “our policies must reflect a basic truth: in today’s world, economic security is national security.” This perspective is not new—the Trump Administration, too, made similar statements.

In a new paper, National Security Creep in Corporate Transactions, forthcoming in the Columbia Law Review, we explore how the fusion of economic and national security is playing out in the context of cross-border investment. In particular, we describe the phenomenon of “national security creep,” which we define as “the recent expansion of national security-related review and regulation of cross-border investments to allow government intervention in more transactions that ever before.” This “national security creep” has impacts for contract design, deal volume, and judicial review in national security-related matters.

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How Companies Should Approach Shareholder Proposals This Proxy Season

Posted by Shaun J. Mathew, Kirkland & Ellis LLP, on
Tuesday, January 3, 2023
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Shaun J. Mathew is a partner at Kirkland & Ellis LLP. This post is based on a Kirkland & Ellis memorandum by Mr. Matthew, Sarkis Jebejian, Sophia Hudson and Christina Thomas.

Key Takeaways:

  • The SEC’s “shareholder proposal rule” was adopted to provide proponent shareholders access to management and fellow shareholders, but with limits to ensure that such access was not being misused or abused for personal gain.
  • SEC Staff responses to shareholder proposal no-action requests last season (the “shift in approach”) disrupted the balance of shareholder access versus potential for abuse, increasing costs for companies (and their shareholders), diverting management’s attention away from running the company, and increasing the number of proposals included in proxy statements.
  • The SEC’s recent proposal to amend Rule 14a-8 could create additional uncertainty for companies this season and encourage the submission of proposals by proponents whose interests are not aligned with those of shareholders seeking a return on investment.
  • It may be appropriate to submit a no-action request this season even if success seems unlikely due to the SEC’s shift in approach last season.

Background

Rule 14a-8 under the Securities Exchange Act of 1934, as amended (“Rule 14a-8”), provides shareholders an avenue to present environmental, social and governance proposals within a company’s proxy statement and on the company’s proxy card for consideration at the company’s annual meeting. Because the company bears the associated costs, the Rule 14a-8 process saves the proponent the cost of preparing and mailing its own proxy statement. Shareholder proposals are frequently opposed by boards of directors for requesting action that is divorced from shareholder value.

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Crisis prevention and readiness

Posted by Claudia H. Allen, David A. Brown, and Patrick A. Lee, KPMG LLP, on
Monday, January 2, 2023
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David A. Brown is leader, Claudia H. Allen and Patrick A. Lee are senior advisors at KPMG LLP. This post is based on their KPMG memorandum.

Crisis prevention and readiness

Crisis prevention and readiness have taken on greater urgency for management and boards as corporate crises—frequently self-inflicted— continue to make headlines. One question that quickly takes center stage, particularly if warning signs went unheeded, corporate culture was the culprit, or the company’s response was seen as inadequate: Where was the board? Could the board have done more to help prevent the crisis, mitigate the impact, or improve the response?

To be sure, the increasing likelihood of externally triggered crises occurring— cyberattack, natural disaster, terrorist act, supply chain failure—should be prompting a hard look at crisis readiness and response plans: Where is the company vulnerable? What is the crisis response plan—and has it been practiced? How well-prepared is the company? Does management have the resources, skills, and plan to handle a major crisis? What is our plan if the CEO is unavailable or otherwise disqualified?

But perhaps more concerning is the deep and long-lasting reputational impact of self-inflicted crises—product quality, worker safety, sexual harassment, unethical sales practices, legal/regulatory compliance—that have also put a brighter spotlight on crisis prevention. How effective are the company’s crisis-prevention efforts, particularly given the speed that news (accurate or inaccurate) travels globally, as well as high stakeholder expectations for companies to “do the right thing”?

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