Monthly Archives: February 2023

The Universal Proxy: An Early Look

Keir Gumbs is a Chief Legal Officer at Broadridge. This post is based on his Broadridge piece. Related research from the Program on Corporate Governance includes Universal Proxies (discussed on the Forum here) by Scott Hirst. 

The Universal Proxy: Background

Last year, the Securities and Exchange Commission’s universal proxy rule took effect. Prior to the rule’s adoption, companies and dissident shareholders sent separate proxy cards listing only their own slate of nominees for board of directors. It was difficult for shareholders to mix and match management and dissident nominees unless they attended a company’s annual meeting in person. Under the universal proxy rule, companies and dissidents are now required to use a universal proxy card that lists all of the nominees from both sides. The rule is triggered when a dissident solicits 67% of a company’s shareholders and complies with nomination procedures included in a company’s bylaws. As a result of the rule, shareholders can select the nominees they favor regardless of who nominated them.


Equal Treatment for U.S. Investors

Howell E. Jackson is the James S. Reid, Jr., Professor of Law at Harvard Law School, and Tyler Gellasch is the President and CEO of the Healthy Markets Association. This post draws on two forthcoming papers by Professor Jackson and Jeffrey Zhang, available here and here, and on Mr. Gellasch’s SEC comment letters.

The expiration of an SEC no-action letter is typically not a topic of interest to the general public or members of Congress. But a firestorm is about to descend on Washington over the SEC’s plans to let a temporary measure adopted nearly six years ago expire this summer. Wall Street lobbyists are gearing up to push for an extension. If the SEC succumbs to their pressure, public pension plans, endowments, and millions of Americans invested in mutual funds will lose out.

The Problem of Bundled Commissions

Securities firms like Morgan Stanley and Goldman Sachs typically offer investors potentially valuable research as well as trading services. These firms have long preferred that investors pay for both trade execution and research services with a single bundled commission. So an investment fund, like a public pension plan or a mutual fund, will often be forced to accept a bundled commission that can be thought of as having two components, a component attributable to the trading (nowadays often less than 1 cent per share), and a component attributable to research services (which can often be as high as 5 or even 10 cents per share).


How Have the Top U.S. Asset Managers Voted in 2022?

Lindsey Stewart is Director of Investment Stewardship Research at Morningstar, Inc. This post is based on his Morningstar memorandum. 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) and The Specter of the Giant Three (discussed on the Forum here), both by Lucian Bebchuk and Scott Hirst; and The Limits of Portfolio Primacy (discussed on the Forum here) by Roberto Tallarita.

Executive Summary

The last year has seen the debate over sustainable investing come to a head. There has never been a greater range of views on how considering environmental, social, and governance factors affects investing. Amid all this debate, everyone seems to agree on one thing: proxy-voting decisions matter.
Asset managers believe that voting at shareholder meetings is an essential element of how they exercise their fiduciary duty on behalf of their clients. Yet, outside the asset-management industry, opinions are increasingly polarized. Some stakeholders think that asset managers aren’t using the influence of their voting power to address environmental and social issues at companies. Others believe managers are overprioritizing such issues to the detriment of investor returns. But, with 2022’s record number of shareholder resolutions on environmental and social issues, it’s hard to find anyone who believes that these votes are inconsequential.

Amid this unprecedented focus on voting, it is a good opportunity to take a deep dive into how the top U.S. asset managers voted on key shareholder resolutions at U.S. companies. We define these key resolutions as those shareholder resolutions addressing environmental or social themes that were supported by 40% or more of a company’s independent shareholders. At a time when asset managers have emphasized their reluctance to support proposals that they see as “unduly prescriptive” or repetitive of existing asks of companies, analyzing these key resolutions gives a clear picture of the levels of shareholder support for proposals that asset managers with a range of approaches to sustainability are prepared to back.

This paper analyzes the trends and key topics for shareholder resolutions over not only 2022 but also 2021 and 2020. It evaluates how the top 20 U.S. asset managers have voted on 241 key resolutions and how those managers’ sustainable funds have voted relative to the wider fund range.


The Liability Trap: Why the ALEC Anti-ESG Bills Create a Legal Quagmire for Fiduciaries Connected with Public Pensions

David H. Webber is Professor of Law at the Boston University School of Law, David Berger is Partner at Wilson Sonsini Goodrich & Rosati, and Beth Young is a lawyer and consultant on ESG issues at Corporate Governance & Sustainable Strategies. This post is based on their 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; How Much Do Investors Care about Social Responsibility? (discussed on the Forum here) by Scott Hirst, Kobi Kastiel, and Tamar Kricheli-Katz; Does Enlightened Shareholder Value add Value (discussed on the Forum here) by Lucian Bebchuk, Kobi Kastiel, Roberto Tallarita; Companies Should Maximize Shareholder Welfare Not Market Value (discussed on the Forum here) by Oliver D. Hart and Luigi Zingales, and Reconciling Fiduciary Duty and Social Conscience: The Law and Economics of ESG Investing by a Trustee (discussed on the Forum here) by Robert H. Sitkoff and Max M. Schanzenbach.


Two proposed bills barring public pensions from considering environmental, social, and governance investment criteria create massive legal risk for any pension fiduciary or service provider. The American Legislative Exchange Council “boycott bill” and the “fiduciary duty” bill, if adopted, would impose irreconcilable legal requirements on such fiduciaries, and subject them to compliance with arbitrary and unworkable legal demands.

The main legal problems the bills create fall into four categories:

(1) the unworkable distinction between “pecuniary” and “non-pecuniary,” a distinction so blurry that the bills are self-contradictory, as we demonstrate;

(2) the clash between the bills’ definition of materiality and that established by the Supreme Court of the United States, such that state law would bar consideration of investment information that federal law requires;

(3) similarly vague and self-contradictory requirements to boycott companies that engage in ESG, and

(4) the transfer of control of proxy voting to elected officials, thereby ensuring the politicization of such voting in direct conflict with the bills’ stated goals.

The boycott bill and the fiduciary duty bill dramatically increase liability risk for plan fiduciaries and service providers without providing any corresponding or even off-setting benefits to fiduciaries or their members. They will reduce the number of service providers willing to work with such pensions, increase liability, insurance, and investment costs for taxpayers, and fund participants and beneficiaries. They should be rejected.


Delaware Supreme Court Enforces Partnership’s Agreement Unambiguous Exculpation Provision

Jason M. Halper and Jared Stanisci are Partners and Sara Bussiere is an Associate at Cadwalader, Wickersham & Taft LLP. This post is based on a Cadwalader memorandum by Mr. Halper, Mr. Stanisci, Ms. Bussiere, Elizabeth Gorman and Dillon Carlin, and is part of the Delaware law series; links to other posts in the series are available here. Related research from the Program on Corporate Governance includes Independent Directors and Controlling Shareholders (discussed on the Forum here) by Lucian Bebchuk and Assaf Hamdani.

Delaware Supreme Court Enforces Partnership Agreement’s Unambiguous Exculpation Provision Waiving Fiduciary Duties and Presuming Good Faith When Relying on Advice of Counsel in Reversing

$690 Million Damages Award to Minority Investors of Boardwalk Pipeline Partners LP

On December 19, 2022, Chief Justice Seitz issued an opinion for a unanimous Delaware Supreme Court, sitting en bane, reversing and remanding the Delaware Court of Chancery’s decision in Bandera Master Fund LP v. Boardwalk Pipeline Partners, an action brought by former minority unitholders alleging breaches of the Boardwalk Pipeline Partners, LP (“Boardwalk”) Partnership Agreement. [1] In its post-trial opinion, the Delaware Court of Chancery had found that Boardwalk’s general partner, which “owned slightly more than 50% of” Boardwalk’s units and indisputably exercised control over it, [2] orchestrated a “sham” trigger of a call right that permitted it to take the entity private by “mani pulating” outside counsel to issue a legal opinion (one of the triggering events under the Partnership Agreement) in breach of the Partnership Agreement and awarded Plaintiffs nearly $700 million in damages. The Delaware Supreme Court reversed, finding that the Court of Chancery should have enforced the plain, unambiguous terms of the Partnership Agreement and finding that the general partner was entitled to exercise the call right when it reasonably relied on an opinion of counsel-notwithstanding the Court of Chancery’s factual finding that the general partner acted “intentionally and opportunistically” in obtaining the opinion-and was exculpated from any damages under the Partnership Agreement. The Supreme Court’s opinion serves as an important reminder of the broad contractual powers that parties have under the Delaware Revised Uniform Limited Partnership Act, including the right to impose expansive limits on the liability of controllers.


How To Fix The C-suite Diversity Problem

Tina Shah Paikeday is the Global Head of the Diversity, Equity & Inclusion Practice, and Nisa Qosja is a Knowledge Consultant at Russell Reynolds Associates. This post is based on their Russell Reynolds 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.

What is the state of diversity in the C-suite?

Diversity, Equity, and Inclusion have been climbing the board and CEO agendas for decades. But while we’ve seen strong commitments and progress in entry-level roles across industries, we’re still a long way off from achieving true equity at the top.

So, what’s holding leaders back? And how can organizations finally make progress for the good of the business, society, and global economies?

To understand the state of C-suite diversity in America, and find ways to create truly representative leadership, we analyzed 1,583 executives at the 100 largest companies in the S&P500—what we call the S&P100.

The headline finding is that organizations still have a lot of work to do to ensure C-suite equity.

  • C-suites in Corporate America are still disproportionately white and male. We see severe under-representation of women, Black, and Hispanic/Latino executives in most C-suite positions.
  • Asian leaders experience a 25% representation decline from P&L leadership to the CEO role whereas Whites experience a 10% increase from P&L leadership to the CEO role.
  • The lack of equity at the top isn’t due to a pipeline problem. The US workforce is diverse. Yet a lack of equity in assessing, developing, and promoting talent is undermining representation at the C-suite level.
  • Addressing top team imbalances requires revolution, not evolution. Without concerted effort, diversity imbalances will continue and grow as underrepresented groups don’t see role models they can aspire to be.

In this paper, we explore how succession planning can help plug diversity gaps at the executive level. We share detailed insights into the current C-suite composition, and detail five ways boards and corporate leaders can develop a diverse and sustainable pipeline of C-suite leaders.


The 2023 board agenda

Carey Oven is National Managing Partner at the Center for Board Effectiveness and Chief Talent Officer, Caroline Schoenecker is an Experience Director, and Robert Lamm is an Independent Senior Advisor. This post is based on their Deloitte LLP memorandum.


The more things change…

On the board’s agenda first focused on the upcoming year’s “hot topics” in January 2018.[1]  Looking at that publication five years later is instructive; it reminds us that while many new topics are likely to be on board agendas in 2023, some topics continue to be at the forefront of board consideration even if the details have changed in some respects.

Of course, many matters have been added to board agendas since 2018 and will remain priority items in 2023. Perhaps the most significant new matters relate to the corporation’s role in society at large. This topic came into focus in 2019, when the Business Roundtable published its “Statement on the Purpose of the Corporation,” [2]  leading to discussions, some of them intense and continuing to date, as to whether corporations owe duties to groups other than shareholders, such as employees, customers, suppliers, and the communities in which they operate. Other societal concerns that have impacted boardrooms include a myriad of events that may have contributed to the broader DE&I focus, which led companies and their boards to consider whether they provide equitable and inclusive work environments, and the COVID-19 pandemic, which continues to impact companies with respect to issues such as employee health and wellness and the fundamental nature of work and the workplace.

We discuss below some of the critical topics that have remained relatively constant in the past five years, as well as new and emerging topics that will likely be on the board’s agenda in 2023.

Board composition and skills


Weekly Roundup: February 17-23, 2023

More from:

This roundup contains a collection of the posts published on the Forum during the week of February 17-23, 2023

Third-Party Risk Oversight

ESG: EU Regulatory Change and Its Implications

2023 Proxy Season Preview

IPOs and SPACs: Recent Developments

Retail Financial Innovation and Stock Market Dynamics: The Case of Target Date Funds

Public Companies and Politics: How to Co-Exist

Meme Corporate Governance

Gender Diversity in the C-Suite

DOJ Doubles Down on Efforts To Incentivize Early Self-Reporting and Cooperation

The Business of Securities Class Action Lawyering

The Business of Securities Class Action Lawyering

Stephen Choi is the Murray and Kathleen Bring Professor of Law at the New York University School of Law, Jessica M. Erickson is the Nancy Litchfield Hicks Professor of Law at the University of Richmond School of Law, and Adam C. Pritchard is the Frances and George Skestos Professor of Law at the University of Michigan Law School.  This post is based on their recent paper. Related research from the Program on Corporate Governance includes Rethinking Basic (discussed on the Forum here) by Lucian Bebchuk and Allen Ferrell.

Plaintiffs’ lawyers in the United States play a key role in combating corporate fraud. Shareholders who lose money due to fraud can file securities class actions to recover their losses, but most shareholders do not have enough money at stake to justify overseeing the cases filed on their behalf. As a result, plaintiffs’ lawyers control these cases, deciding which cases to file and how to litigate them. Recognizing the agency costs inherent in this model, the legal system relies on lead plaintiffs and judges to monitor these lawyers and protect the best interests of absent class members. Yet there is remarkably little data on the business of securities class action lawyers, leaving lead plaintiffs and judges to oversee this area without the tools to understand how it works.

Our latest article, The Business of Securities Class Action Lawyering, is the largest academic study to date of the law firms that help shareholders recover money lost to corporate fraud. Our study is based on hand-collected data from the case records of all federal securities fraud class actions filed against public companies between 2005 and 2018—approximately 2500 lawsuits. This data allows in-depth analysis of the business behind securities class action lawyering.

Our data yields a number of significant insights into this area of practice. We first examine the specific business models of the law firms that participate in these cases as plaintiffs’ lawyers, finding the business of securities class action lawyering is far more complex than prior scholarship has recognized. Contrary to conventional wisdom, there are not two tiers of plaintiffs’ law firms; instead, there are multiple tiers of firms, each with its own client base, litigation patterns, and revenue model. We also find a previously unrecognized category of firms playing secondary roles in these cases, including many that appear to connect lead counsel firms with investors willing to serve as lead plaintiffs.


DOJ Doubles Down on Efforts To Incentivize Early Self-Reporting and Cooperation

Alessio Evangelista and Andrew Good are Partners and Bora Rawcliffe is Counsel at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on their Skadden memorandum.

On January 17, 2023, the U.S. Department of Justice (DOJ) announced revisions to the Criminal Division’s Corporate Enforcement Policy. The revisions follow Deputy Attorney General (DAG) Lisa Monaco’s September 2022 memorandum directing all DOJ components to adopt clear policies on certain issues, including a written policy to incentivize voluntary self-disclosure by companies. (See our November 21, 2022October 6, 2022, and September 16, 2022, client alerts on the topic.)

The revisions largely focus on DOJ expectations and policies designed to further incentivize early and voluntary self-disclosures. For example, even a company involved in serious misconduct with aggravating circumstances (such as executive management involvement, recidivism or pervasiveness of misconduct within the company) may be able to avoid prosecution. This would occur if the company had an effective compliance program and system of internal accounting controls that enabled the identification of the misconduct and led to the company’s voluntary self-disclosure, and the company engaged in extraordinary cooperation and remediation.

Importantly, the revised policy emphasizes that companies are encouraged to self-disclose immediately upon identifying allegations of potential misconduct, even if an internal investigation has not been completed.

The revised policy also gives prosecutors more discretion in:

  • granting declinations;
  • dealing with recidivist companies; and
  • seeking reduced penalties for companies that meet certain criteria.

The policy further clarifies that it applies to all corporate matters prosecuted by the Criminal Division, not just Foreign Corrupt Practices Act (FCPA) cases.

Below, we summarize the key takeaways from the revised policy.


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