Monthly Archives: March 2023

On the Debate Regarding ESG, Stakeholder Governance, and Corporate Purpose

Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton memorandum by Mr. Lipton, Adam O. EmmerichKevin S. SchwartzSabastian V. Niles, Carmen X. W. Lu, and Anna M. D’Ginto. 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; 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.

We previously described (most recently here, here, and here) the growing politicization of the consideration of environmental, social, and governance (ESG) factors in decision-making by asset managers, financial institutions and public companies, among others. In particular, a key target of political attention has been investment managers’ and pension fund fiduciaries’ consideration of ESG factors in their investment-related decisions. A prime example is a recent paper arguing that public pension trustees are prohibited by law from considering ESG factors in their investment decisions (or allocating capital to asset managers who engage in such practices) and, separately, that registered investment advisers may place client capital in investments promoting ESG objectives only after obtaining informed, express client consent. Notably, the paper defines ESG as a set of “loosely-defined but highly influential non-pecuniary criteria that purport to assess the extent to which companies are achieving certain social and political objectives with which many citizens disagree.” This critique, which regards ESG as a matter of ideology rather than economics, has also found voice among conservative state treasurers and attorneys general and among certain presidential aspirants who are building anti-“woke” campaigns targeting ESG.


Russell 3000 Boards Becoming More Diverse

Subodh Mishra is Global Head of Communications at Institutional Shareholder Services. This post is based on an ISS Corporate Solutions memorandum by Paul Hodgson, Senior Editor; Aditi Aier, Senior Associate; and Carmen Luk, Senior Associate at ISS Corporate Solutions. 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.

There has been a lot of talk about how to increase racial and ethnic diversity on U.S. corporate boards as well as many initiatives to help nominating committees identify candidates from under-represented groups. To assess the current situation, ISS Corporate Solutions took a look at the diversity trend in the Russell 3000 over five years, with a special focus on Black/African American directors in recognition of Black History Month.

Key Takeaways

  1. For the first time, minority directors occupy more than 20% of board seats among Russell 3000 companies
  2. Black/African Americans saw the highest increase in directorships, a rise of more than 90% between 2019 and 2023
  3. There were significant increases in Black/African American representation across all industries except Utilities, a sector that has long seen the highest Black/African American representation
  4. Black/African American CEOs and board chairs continue to be extremely rare, at around 1% of the total

The proportion of Caucasian/White directors in the Russell 3000 declined by 9% during the period falling below four-fifths for the first time. At the same time, the proportion of directors from minority groups, including Black/African American, Asian and Hispanic/Latin American, increased. While the changes were large in some cases, the proportion of minority-held directorships grew by only a percentage point or so in most years. Native American/Alaskan Native/Native Hawaiian directors continue to represent the smallest proportion of directors among minority groups. Black/African American directors have overtaken Asian directors in percentage terms. The pace of change for Black/African American directors began to accelerate in 2021 during the pandemic and in the wake of Black Lives Matter movement.


What to Say When Launching a Strategic Review Process

Patrick Ryan is a Senior Vice President at Edelman Smithfield. This post is based on his Edelman piece.

A chaotic energy filled the halls of an S&P 500 company. The head of HR was managing a flood of employees in her office with questions about how their benefits could be impacted if the company is sold. Meanwhile, the company’s head of communications was busy fielding reporter inquiries from Bloomberg and other media outlets, while down the hall, the CEO was on the phone with frustrated clients. In the ensuing weeks, HR noticed an uptick in employee attrition and difficulties recruiting talent.

The company’s clients and employees were reacting to an announcement that its board of directors would “review strategic alternatives, including a potential sale of the company.” They were understandably concerned about the implications for them. Like many boards and management teams, the company’s leadership had failed to anticipate how disruptive such an announcement can be. Had they planned appropriately, they would not have been caught so flatfooted.

Below, we review challenges that publicly announcing a strategic review can create. We then outline communications practices for addressing these obstacles.


Applying Economics – Not Gut Feel – To ESG

Alex Edmans is Professor of Finance at London Business School. This post is based on his recent paper. 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.

Executives, investors, policymakers, the media, and business schools are taking environmental, social, and governance (“ESG”) issues more seriously than ever before. Given ESG’s potential to create long-term value for both shareholders and society, this attention is both much-needed and welcome. However, the enthusiasm for ESG – and, in particular, the pressure to do something or say something about ESG to demonstrate your commitment – can often lead to actions or statements that shoot from the hip and apply gut feel rather than being based on careful analysis.

One justification for shooting from the hip is that ESG is so new, and traditional finance research so focused on shareholder value, that there is no research to guide us. However, as explained in a recent paper, “The End of ESG”, ESG is both “extremely important and nothing special” – it’s no different to any other investment that creates long-term financial and social value – and decades of finance research have studied the risk and return to investment. My new paper, “Applying Economics – Not Gut Feel – To ESG” uses the insights from mainstream economics to help us understand ten key issues in ESG – and, in doing so, reaches different conclusions from conventional wisdom.


SEC Enforcement: Year in Review

Harris Fischman and Jessica Carey are Partners at Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post is based on a Paul, Weiss memorandum by Mr. Fischman, Ms. Carey, Elizabeth Norford and Griffin Varner.

During Chair Gary Gensler’s and Director of Enforcement Gurbir Grewal’s second year of leadership, several key enforcement priorities came into focus that will impact businesses across sectors. In this year in review, we highlight important takeaways for business leaders and in-house counsel from the Division’s activities in 2022, and what these activities mean for the Division’s priorities for the year ahead.


  • Aggressive Positions Leading to Increased Penalties and Other Prophylactic Remedies: The SEC obtained a record $4.2 billion in penalties.[1] These figures were significantly bolstered by investigative “sweeps,” including enforcement actions against broker-dealers relating to the use of “off-channel” communications, such as text messages, resulting in more than $1 billion in penalties.[2] The SEC also required admissions and engagement of compliance consultants in a number of high-profile matters.
  • Untested Positions Regarding Cryptocurrency: The SEC continues to take untested positions that various forms of digital assets are securities subject to, among other things, the registration requirements of the securities laws. A series of enforcement actions pursuing digital assets with novel enforcement theories has resulted in an increase in litigated cases, including litigation concerning whether particular cryptocurrencies are in fact securities.
  • Increase in Climate and ESG Disclosures: The past year featured significant rulemaking concerning required disclosures by ESG funds as well as anticipated significant new rulemaking regarding human working capital. The Division also filed several ESG-related enforcement actions in 2022 foreshadowing areas of focus for 2023 and beyond.
  • Trends in Insider Trading, Cybersecurity, SPACs and Other Critical Areas: There were a number of other notable developments in enforcement activity and significant rulemaking activity relating to cyber disclosures, SPACs and insider trading.


​ESG Battlegrounds: How the States Are Shaping the Regulatory Landscape in the U.S.

Leah Malone is a Partner, Emily B. Holland and Carolyn Houston are Counsel at Thacher & Bartlett LLP. This post is based on their Thacher & Bartlett LLP memorandum. 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; 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.

When it comes to ESG in the United States, among the most dramatic developments is an ideological battle unfolding at the state level, pitting liberal-leaning state governments that have embraced ESG-focused investing against conservative-led states that would seek to exclude it.

To date, the general consensus had been that the U.S. is lagging on its ESG focus, particularly in contrast to the EU and U.K. where investor, political and societal support has generally been strong. U.S. federal agencies have been slower to propose rules in this area than their European counterparts. As a result, much of the activity on the ESG front remains the subject of private ordering, where companies are offering disclosure and making commitments in response to investor and stakeholder demands rather than regulatory requirements.

But over the past year, the picture has shifted. States have stepped up their lawmaking, defining the future of the ESG-related regulatory environment with widely divergent approaches.

These measures focus primarily on the investment of state-level public retirement system assets. New varietals of these and other ESG-focused laws [1] are becoming regular events. Individually and collectively, the developments are further fracturing an already complicated landscape for financial services companies, including private investment managers that invest money on behalf of state pensions. Meanwhile multistate initiatives are taking aim at individual asset managers, banks and proxy advisory services perceived to be driving ESG growth. [2] In at least one state, banks are fighting back. [3]


Global Corporate Governance Trends for 2023

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.

Keeping up with the ever-changing trends in global corporate governance is no easy task, as countries introduce new governance rules that trigger knock-on effects around the world. To help you stay ahead of the trends, we produce an annual outlook of the corporate governance landscape. For this eighth edition, we interviewed dozens of global institutional investors, shareholder activists, pension fund managers, regulators, proxy advisors, and other corporate governance professionals to identify the most pressing corporate governance issues that boards and directors are likely to confront in 2023 and beyond.

Three global corporate governance trends to expect in 2023


Weekly Roundup: March 3-9, 2023

More from:

This roundup contains a collection of the posts published on the Forum during the week of March 3-9, 2023.

The 2023 Reporting Season: Recent SEC Guidance

ESG: Trends to Watch in 2023

Corporate Officers Owe the Same Caremark Oversight Duties as Directors

Musings and Questions about the Universal Proxy Card

About 1,500 Empirical Studies Apply the BCF Entrenchment Index

Too Many Managers: The Strategic Use of Titles to Avoid Overtime Payments

S&P 500 CEO Compensation Increase Trends

To Exculpate, or Not to Exculpate: Is It Even a Question?

HLS Forum Sets New Records in 2022

Public Reporting of Monitorship Outcomes

2023 Proxy Season Preview – Compromise and Conflict Ahead

2023 Proxy Season Preview – Compromise and Conflict Ahead

Merel Spierings is a Researcher for the ESG Center at The Conference Board. This post is based on her Conference Board memorandum, in partnership with ESG analytics firm ESGAUGE and in collaboration with Russell Reynolds Associates and Rutgers Center for Corporate Law and Governance.


Something rather unexpected happened in the 2022 proxy season. Amid a growing focus on environmental, social & governance (ESG) issues, [1] and following a 2021 proxy season with record support for shareholder proposals on environmental and social (E&S) topics,[2] average support for E&S shareholder proposals declined compared with 2021. At the same time, opposition to directors and negative votes on say-on-pay proposals increased.

This signals a trend that is expected to continue into 2023: more friction between companies and investors in traditional areas of corporate governance and executive compensation than in E&S areas. Investors will continue to use their votes on director elections and say-on-pay to express their concerns about governance and problematic pay packages, but will likely seek common ground on many E&S issues.

Although this dynamic provides an opportunity for companies, as investors are truly open to hearing companies’ side of the story on E&S issues, companies are not off the hook. In fact, the 2023 proxy season promises to be, yet again, more challenging than previous years, with even more shareholder proposals, lower support for directors and say-on-pay proposals, and increased Big “A” activism, which aims to change corporate strategy.


Public Reporting of Monitorship Outcomes

Veronica Root Martinez is Professor of Law at the Duke University School of Law. This post is based on her paper, recently published in the Harvard Law Review.

When a company engages in misconduct, questions often arise over whether the company should handle its own remediation effort without outside oversight and assistance. For the most egregious misconduct—conduct that is significant, pervasive, or widespread—a monitorship is often imposed by the court or via a settlement agreement between the firm and the government. For instance, in 2012, HSBC Bank USA N.A. and HSBC Holdings plc (collectively, “HSBC”) entered into a deferred prosecution agreement with the Department of Justice due to issues with their money-laundering program and due diligence practices. As part of the agreement, HSBC entered into a corporate compliance monitorship for a period of five years. The HSBC monitor, as is true with most monitors, was required to provide regular reporting to the government and the firm, but those reports, like most monitor reports, remained unavailable to the public.

However, the question of whether, and to what degree, monitors’ reports should be available to the public is hotly contested. In the case of HSBC, the company, the DOJ, and the monitor all objected to the release of information to the public, stating that it would impede the monitor’s effectiveness. Moreover, the monitor expressed concerns that releasing an interim report might create a “chilling effect” on his ability to work with HSBC employees during the balance of the monitorship. Ultimately, the Second Circuit blocked public access to the monitor’s report.


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