Monthly Archives: February 2023

Gender Diversity in the C-Suite

Gabrielle Lieberman is a Leader of the Center for Leadership Insights at Russell Reynolds Associates. This post is based on a Russell Reynolds memorandum by Ms. Lieberman and Tom Handcock. 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.

Research shows that adding women to the C-suite changes how companies think. [1] Women executives impact how the C-suite approaches strategy and innovation. Simply put, women in executive leadership is good for business. And yet, women are still vastly underrepresented in the top leadership teams at America’s largest public companies.

In Russell Reynolds Associates’ analysis of the top 100 companies in the S&P500 (referred to as the S&P100 in this report), we found that men are 2.5x more likely than women to be executives in the top leadership teams. The roles in which women are well-represented are those that hold far less power and influence, highlighting the limitations of gender diversity and the perceived value of women in these organizations.

Closing the gender gap at the top remains a priority for companies as they continue to face increased scrutiny from stakeholders who demand more diversity in executive leadership. While there are currently no federal laws mandating gender diversity in executive leadership, many states have enacted legislation that specifically focuses on increasing gender diversity on corporate boards. Most notably, California became the first state in the US to mandate that public companies headquartered in the state must have women directors or face fines, up to $300,000.2 Although the law has been credited with improving the standing of women on corporate boards, gender diversity on corporate boards is not indicative of gender diversity in the C-suite.


Meme Corporate Governance

Albert H. Choi is Paul G. Kauper Professor of Law at the University of Michigan, Dhruv Aggarwal is a J.D. Candidate at Yale Law School and Ph.D. Candidate at Yale School of Management, and Alex Lee is Professor of Law at Northwestern Pritzker School of Law. This post is based on their recent paper.

Starting in January 2021, the U.S. stock market was hit by a “meme stock” storm. Fueled by the rise of zero-commission trading (popularized by Robinhood) and online coordination through social media sites—such as Reddit—retail investors engaged in an active “buy” campaign to push up the stock prices of companies like GameStop and AMC to stratospheric levels. Taking advantage of the elevated stock prices, these firms unsurprisingly engaged in large amounts of capital raising through stock sales, alleviating their previously dire liquidity condition. The historic upsurge in retail investing has been met with both cynicism and celebration. Some scholars, concerned with the implication for the market’s efficiency, called for regulation of zero-commission trading and, more broadly, retail investing. Others, on the other hand, viewed the meme stock frenzy as signaling a new era of empowered retailed investors. Those with a more optimistic outlook on the meme stock frenzy have argued that coordinated retail investor movement can further lead to coordinated shareholder movement, empowering retail shareholders to bring about significant changes in corporate governance and to even make companies more prosocial. Did the influx of retail investors actually affect the governance structure at the meme stock companies? In a recent paper, we provide an empirical assessment of the factors that created the meme phenomenon and its consequences for corporate governance.


Public Companies and Politics: How to Co-Exist

David Lopez is a Partner and Jonathan Povilonis is an Associate at Cleary Gottlieb Steen & Hamilton LLP. This post is based on their Cleary memorandum.

A number of U.S. public companies have recently found themselves in a surprising place: trapped in visible and charged debates with politicians over internal corporate and investment policies. [1]

And when those policies strike different chords across the political spectrum, it increasingly brings boards of directors into new realms of controversy.  Can this trap be avoided or has corporate policy forever become entangled in a continuation of politics by other means?  Will public companies be forced to declare red or blue allegiances to match the polarized political environment of red and blue states? And will investors follow suit?

For companies that want to keep away from both the political debate and the allegiance question, the path is challenging but should start with fiduciary duty basics: develop policies under a clearly articulable rationale that enhances shareholder value.  Doing so removes the central argument cited by some observers against, for example, ESG-oriented policies: that they support a cause rather than a business objective and thereby undermine the classic corporate purpose.


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

Jonathan A. Parker is the Robert C. Merton (1970) Professor of Finance at MIT Sloan School of Management, Antoinette Schoar is the Stewart C. Myers-Horn Family Professor of Finance at MIT Sloan School of Management, and Yang Sun is Assistant Professor of Finance at Brandeis International Business School. This post is based on their article forthcoming in the Journal of Finance.

Over the past two decades, one of the most important financial innovations for the typical American retail investor has been the development and spread of Target Date Funds (TDFs, also called life-cycle funds). A TDF is a fund of funds that invests in a number of mutual funds so as to maintain given fractions of its assets in different asset classes, such as stocks and bonds. The specific asset allocation depends on the time until the investor’s expected retirement date, which is the fund’s target date. As time passes and its investors age, the TDF shifts the portfolio allocation automatically from higher to lower equity share, following the prescriptions of life-cycle models of optimal portfolio choice. The capital invested in TDFs and balanced funds (BFs) rose from under $8 billion in 2000 to almost $6 trillion in 2021, which is 22% of all funds invested in US mutual funds (about $27 trillion). This rapid growth was facilitated by the Pension Protection Act (PPA) of 2006, which qualifies both TDFs and BFs as default options in defined-contribution retirement saving plans. Similar strategies that automatically stabilize the share of an investor’s portfolio in different asset classes have recently been incorporated into a broader set of investment products, such as some automated advisory programs (e.g., model portfolios).

In our paper, “Retail Financial Innovation and Stock Market Dynamics: The Case of Target Date Funds”, we show that the rise of TDFs — originally designed to improve the diversification of individuals’ portfolios – has changed the flow of investor funds across funds and, now that they are big, started affecting the prices and returns of stocks. We focus on the fact that TDF strategies are macro-contrarian: after high stock market returns, TDFs’ strategies require that they sell stocks to return to their prescribed asset allocations within a short period of time. Historically, retirement and retail investors are either passive — letting their portfolio shares rise and fall with the returns on different asset classes — or they are active and tend to reallocate their assets into asset classes or funds with better past performance, a behavior known as positive feedback trading or momentum trading that can amplify price fluctuations. In contrast, by rebalancing to maintain age-appropriate asset allocations, TDFs trade against excess returns in each asset class, selling stocks and buying bonds when the stock market outperforms the bond market, and vice versa. The market-wide impact of this contrarian behavior was not the primary intent of the product design of TDFs which was simply to improve the individual-level portfolio choices of inattentive or unsophisticated retail investors.


IPOs and SPACs: Recent Developments

Rongbing Huang is a Professor of Finance in the Coles College of Business at Kennesaw State University, Jay R. Ritter is the Cordell Eminent Scholar at the University of Florida’s Warrington College of Business, and Donghang Zhang is a Professor of Finance in the Darla Moore School of Business at the University of South Carolina. This post is based on an article forthcoming in the Annual Review of Financial Economics. Related research from the Program on Corporate Governance includes SPAC Laws and Myths (discussed on the Forum here) by John C. Coates.

The review article, IPOs and SPACs: Recent Developments, forthcoming in the Annual Review of Financial Economics, examines recent developments in the IPO market. The paper discusses three alternative mechanisms for going public, including traditional bookbuilt initial public offerings (IPOs), direct listings, and mergers with special purpose acquisition companies (SPACs), and provides a review of recent evidence on the processes, pricing, and consequences of IPOs.

A traditional bookbuilt IPO uses one or more underwriters to help the issuing firm conduct a roadshow (marketing campaigns aimed at institutional investors) and survey investor demand before pricing and allocating shares. These IPOs have faced criticism for leaving too much money on the table, defined as the difference between the market value of the shares sold and the issue proceeds. Underwriters have discretion in the allocation of shares and thus have incentives to set an offer price that allows them to allocate underpriced shares to favored clients. In auction IPOs and direct listings, investment banks do not have such discretion.


2023 Proxy Season Preview

Allie Rutherford is a Partner, Adrienne Monley is a Managing Director, and Eric Sumberg is a Director at PJT Camberview. This post is based on their PJT memorandum.


  1. Universal proxy card rules are the most significant change in corporate governance since say-on-pay and will amplify already complex proxy fight dynamics
  2. Investors will go back to basics with a focus on the board as voting policies and engagements prioritize board composition and accountability
  3. Say-on-pay votes will be impacted by the broad market downturn as investors consider how pay aligns with their experience; inaugural pay versus performance disclosures will introduce new complexity
  4. Companies and investors will contend with continued high volume of shareholder proposals, many of which are more targeted to company circumstances
  5. Large asset managers will act to offset ESG backlash and challenges they are facing as a result of their influence


2022 Corporate Governance Trends in Silicon Valley and at Large Companies Nationwide

David A. Bell is a Partner and Co-Chair of Corporate Governance, and Ron C. Llewellyn is a Counsel at Fenwick & West LLP. This post is based on their Fenwick memorandum.

Corporate governance practices vary significantly among public companies. This reflects many factors, including:

  • Differences in their stage of development, including the relative importance placed on various business objectives (for example, focus on growth and scaling operations may be given more importance for technology and life sciences companies);
  • Differences in the investor base for different types of companies;
  • Differences in expectations of board members and advisors to companies and their boards, which can vary by a company’s size, age, stage of development, geography, industry and other factors; and
  • The reality that corporate governance practices that are appropriate for large, established public companies can be meaningfully different from those for newer, smaller companies.

Since the passage of the Sarbanes-Oxley Act of 2002, which signaled the initial wave of corporate governance reforms among public companies, each year Fenwick has surveyed the corporate governance practices of the companies included in the Standard & Poor’s 100 Index (S&P 100) and the technology and life sciences companies included in the Fenwick – Bloomberg Law Silicon Valley 150 List (SV 150). [1]


ESG: EU Regulatory Change and Its Implications

Lewis Davison is a Senior Product Manager, Fiona McNally and Charlotte North are Directors at BNY Mellon. This post is based on a BNY Mellon report. 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; and Companies Should Maximize Shareholder Welfare Not Market Value (discussed on the Forum here) by Oliver D. Hart and Luigi Zingales.

Despite the sharp change in the financial landscape over the past year and an increasingly challenging macroeconomic climate, investment focused on environmental, social and governance (ESG) factors is set to grow. Global ESG assets may reach $50 trillion by 2025, one-third of the projected total assets under management globally, from $35 trillion in 2020. [1] Climate-related challenges, in particular, have come to the fore given the experience of unprecedented heat waves in parts of Europe, forest fires in the U.S. and devastating floods in Pakistan during 2022.

The first paper in this series explained how many institutional investors, including asset managers, asset owners and pension fund providers, have begun mapping their impact processes and integrated screening tools into their investment protocols, incorporating ESG priorities, obligations, and expectations. It also outlined global regulatory compliance responsibilities at a high level and assessed the challenges institutional investors face given inconsistent data quality and differing national and regional approaches to ESG regulation, which can be problematic for global investors.

This paper is focused primarily on the European Union’s (EU) regulatory approach to sustainability disclosure and on recent developments and likely forthcoming initiatives. It considers the implications of these measures for institutional investors and assesses the remaining uncertainties and the key practical challenges that need to be addressed for preparedness. The paper also briefly outlines U.S. and UK ESG regulation, which is at an earlier stage than the EU; the U.S. and UK regulatory positions will be more fully assessed in a future paper.


Third-Party Risk Oversight

Dan Kinsella is a Partner, and Adam Thomas is a Principal at Deloitte & Touche LLP. This post is based on their NACD publication. 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 TallaritaRestoration: 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.

In many companies, boards of directors and C-suite leaders have seen firsthand how rapidly risks related to third parties can threaten their own company’s ability to deliver on its mission and strategy. Some companies have also experienced how significantly the missteps of third parties—as well as fourth parties, fifth parties, and sixth parties in a third-party ecosystem—can tarnish the company’s brand and reputation.

As an example of how third-party breakdowns can affect companies, consider which entity is typically the focal point when a supply chain failure leads to outages, cancellations, or other disruptions. Is it the third parties whose failures led to production or service interruptions? Or is it the entity doing business with end users who are left empty handed?

Although pandemic-era supply chain issues have filled the news headlines, supply chain challenges are not new. What is new is the increasing frequency of adverse events that disrupt supply chains, combined with the scope of risk that exists—often undetected—in increasingly dispersed supply chain ecosystems that are often highly interconnected and interdependent.


Weekly Roundup: February 10-16, 2023

More from:

This roundup contains a collection of the posts published on the Forum during the week of February 10-16, 2023

Director Perspective: Top Priorities of 2023

Who Are Quality Shareholders and Why You Should Care

Change management for the legal function

Trust, Transparency, and Complexity

The Complex Materiality of ESG Ratings: Evidence from Actively Managed ESG Funds

2022 Investor Voting Report

Board Governance Structures and ESG

(Much Too Early) Observations on the Universal Proxy Card

2022 Silicon Valley 150 Corporate Governance Report

Why Do Large Positive Non-GAAP Earnings Adjustments Predict Abnormally High CEO Pay?

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