Monthly Archives: May 2023

2023 Say on Pay & Proxy Results

Todd Sirras is a Managing Director, Austin Vanbastelaer is a Senior Consultant, and Justin Beck is a Consultantat Semler Brossy LLC. This post is based on a Semler Brossy memorandum by Mr. Sirras, Mr. Vanbastelaer, Mr. Beck, Kyle McCarthy, Nathan Grantz, and Anish Tamhaney.

2023 Say on Pay Results


Russell 3000 companies (1.5%) have failed Say on Pay thus far in 2023. Since our last report, seven companies have failed Say on Pay: BlackLine, CME Group, Equifax, Pitney Bowes, Prologis, Simon Property Group, and Telos


  • The current failure rate (1.5%) is 130 basis points lower than the failure rate at this time last year (2.8%)
  • The percentage of Russell 3000 companies receiving greater than 90% support (78%) is higher than the percentage at this time last year (75%)
  • The current Russell 3000 average vote result of 91.4% is 220 basis points higher than the index’s year-end average vote in 2022, and the current S&P 500 average vote result of 89.3% is 210 basis points higher than the year-end average vote in 2022
  • The average Russell 3000 vote result thus far in 2023 is 210 basis points higher than the average S&P 500 vote result


New Disclosures in Periodic Reports on Share Repurchases

Eric Orsic, Heidi J. Steele, and Diana Douglas are Partners at McDermott Will & Emery LLP. This post is based on their MWE memorandum. Related research from the Program on Corporate Governance includes Short-Termism and Capital Flows (discussed on the Forum here) by Jesse M. Fried, and Charles C.Y. Wang; and Share Repurchases, Equity Issuances, and the Optimal Design of Executive Pay (discussed on the Forum here) by Jesse M. Fried.

On May 3, 2023, the US Securities and Exchange Commission (SEC) adopted amendments to the share repurchase disclosure rules that require the disclosure of daily share repurchase activity on a quarterly basis by domestic issuers and foreign private issuers and on a semi-annual basis by registered closed-end management investment companies (Listed Closed-End Funds). Domestic issuers are required to comply with these amendments beginning with their first periodic report that covers the first full fiscal quarter commencing on or after October 1, 2023. Foreign private issuers are required to file a new Form F-SR on a quarterly basis to comply with the amendments beginning with their first full fiscal quarter that commences on or after April 1, 2024, and must provide additional disclosures in their first Form 20-F following their first Form F-SR filing. Listed Closed-End Funds must comply beginning with their Form N-CSRs that cover the first six-month period that starts on or after January 1, 2024.


Shareholder Activism: What Investors Seek, Which Companies Are Targeted, and How Stocks Perform

David Kostin is Chief US Equity Strategist and Jenny Ma is a US Equity Strategist at Goldman Sachs. This post is based on their Goldman Sachs memorandum. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism (discussed on the Forum here) by Lucian Bebchuk, Alon Brav, and Wei Jiang; Dancing with Activists (discussed on the Forum here) by Lucian A. Bebchuk, Alon Brav, Wei Jiang, and Thomas Keusch; and Who Bleeds When the Wolves Bite? A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System by Leo E. Strine Jr.

  • Shareholder activism surged during 2022 but the pace moderated in 1Q 2023. Activists launched 148 campaigns against 120 distinct US corporations during 2022, a roughly 20% year/year jump, ranking among the top 5 most active years since 2006. During 1Q 2023, investors launched 27 campaigns against 26 companies, a 24% decline from 4Q 2022.
  • A changing regulatory landscape and an uncertain macro environment should support shareholder activism in 2023. The Universal proxy took effect last fall and will embolden activists during the upcoming proxy season. The valuation decline and increased cost of capital means activist investors will focus on profitability and idiosyncratic opportunities of potential targets.
  • Our analysis covers 2,142 shareholder activism campaigns launched since 2006 with a corporate valuation demand against Russell 3000 companies.
  • For INVESTORS: The median stock targeted by activist investors outperformed its sector by 3pp in the week after the launch of a campaign. However, excess returns were short-lived and typically turned negative after six months. While 69% of targeted stocks outperformed during the first week, after one year only 42% of stocks outperformed their respective sectors and the median stock lagged by 5 pp. A wide performance distribution exists for both successful and unsuccessful activist campaigns and varies by type of activist demand. While the median activist target lagged its sector, the average activist target outperformed by 4 pp over 12months. The asymmetric nature of returns suggests that “piggyback” portfolio managers with a consistent approach to investing in activist targets can generate positive returns over time.
  • For MANAGEMENTS: We identify four metrics relative to the sector median that are associated with an increased likelihood of becoming an activist target: (1) Slower trailing sales growth, (2)lower trailing EV/sales multiple, (3) weaker trailing net margin, and (4) trailing 2-yearunderperformance. Note that low realized sales growth relative to the sector median is the metric most associated with a target company’s share price outperformance following the launch of an activist campaign. Exhibit 19 lists 116 stocks that have experienced at least 10 pp slower realized sales growth relative to its sector median over the past 12 months and at least one source of vulnerability.


Disloyal Managers and Shareholders’ Wealth

Eliezer M. Fich is Professor of Finance at Drexel University LeBow College of Business, Jarrad Harford is Professor of Business Administration at the University of Washington Foster School of Business, and Anh L. Tran is a Professor of Finance at City University of London Bayes School of Business. This post is based on their article forthcoming in the Review of Financial Studies. Related research from the Program on Corporate Governance includes Monetary Liability for Breach of the Duty of Care? (discussed on the Forum here) by Holger Spamann.

The corporate opportunity doctrine prohibits officers, directors, and other fiduciaries from personally benefiting from business opportunities that belong to the corporation. This doctrine derives from the long-standing duty of loyalty to the corporation that binds all corporate fiduciaries. In 2000, States, beginning with corporate law standard-setter Delaware, passed corporate opportunity waiver (COW) laws that explicitly permit companies to waive this duty of loyalty for managers and fiduciaries who find new business opportunities in the course of their conduct for the company. As a result, COWs enable fiduciaries to seize for themselves a business opportunity that would otherwise benefit the corporation and its shareholders. In the Review of Financial Studies article titled “Disloyal managers and shareholders’ wealth,” we examine the impact of these waiver laws on corporate innovation and growth strategies at public traded firms.

State legislators noted that the corporate opportunity doctrine left firms, particularly small ones, without contracting flexibility when, for example, pursuing funding from individuals or venture capitalists who might have varied business interests and therefore overlapping duties of loyalty. The waiver laws aimed to help small, emerging firms, but were written with unrestricted applicability to all firms. At larger firms, where contracting flexibility to raise capital is not an issue, the impact is uncertain because the net effect of agency conflicts weighed against the benefits of the waiver is an empirical question. To inform this question, we investigate the corporate opportunity waiver laws’ net effect on a large panel of publicly traded U.S. firms, exploiting the laws’ staggered adoption by nine states between 2000 and 2016.


It’s Time to Call a Truce in the Red State/Blue State ESG Culture War

Robert Eccles is Visiting Professor of Management Practice at Oxford University Said Business School and Eli Lehrer is the co-founder and President of the R Street Institute. This post is based on their recent piece. 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 TallaritaHow 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 Hart and Luigi Zingales.

Over the past year, the debate over Environmental, Social and Governance (ESG) standards in the United States has revealed stark policy contrasts between red and blue states. Red state officials have proposed and enacted “anti-boycott” bills which bar state business with firms that divest from favored industries. Blue states, on the other hand, have widely considered efforts to mandate divestments from the same industries. Neither approach makes economic sense. Recognizing this creates a real opportunity for a truce, based on fiduciary duty and the separation of political issues from investment decisions.

And we need a truce because the pace of legislation about ESG is only accelerating. Data collected by the law firm Simpson Thacher & Bartlett shows that at least 28 policies and laws have taken effect since 2021 alone and, as of the spring of 2023, there are at least 13 pending bills related to ESG. This doesn’t count the enormous number of existing policies–everything from preferences for small businesses to laws against investing state funds with companies that operate in certain countries–that would fall under the ESG umbrella if proposed today. While the stated financial protection and future-proofing objectives behind these proposals are worth consideration, they are bad policies likely to fail on their own terms while doing significant fiscal damage.


The Imperfect CEO

Justus O’Brien co-leads the Board & CEO Advisory Partners Practice and Dean Stamoulis is a Managing Directer at Russell Reynolds Associates. This post is based on their Russell Reynolds memorandum.

Why businesses should embrace the imperfect CEO

Imperfection isn’t failure. Yet when it comes to CEO succession, businesses today often expect candidates to be the full embodiment of excellence and success—to be perfect.

They expect CEOs to avoid any missteps as they set the direction and strategy of the company, lead and develop the executive team, build and maintain relationships, make decisions, communicate effectively, manage financial performance, and demonstrate integrity and ethical leadership.

And this lengthy list of expectations is only growing. New demands keep emerging, while old demands never drop off – from owning environmental, social, and governance (ESG) actions, to explaining approaches to data security.

As demands keep proliferating and perfection remains out of reach, would it be better for the individual and business if those in charge of CEO succession efforts embraced the “imperfect CEO”?

When CEOs can admit their flaws and mistakes, they create a sense of trust and authenticity with employees, investors, and other stakeholders.


Significant Amendments to Private Fund Adviser Reporting on Form PF

Diane Blizzard is a Partner and Radhika Kshatriya is an Associate at Kirkland & Ellis LLP. This post is based on a Kirkland & Ellis memorandum by Ms. Blizzard, Ms. Kshatriya, Nick Hemmingsen, Daniel Kahl, Scott A. Moehrke, and Reed T. Schuster.

On May 3, 2023, the SEC voted to adopt significant amendments to Form PF on a 3-2 vote. [1] Form PF requires SEC-registered investment advisers to file reports with the SEC regarding private funds managed by such advisers and allows the Financial Stability Oversight Council to assess systemic financial risk to the U.S. financial system. Currently, reports on Form PF for private equity fund advisers (usually including real estate and private credit within this category) are filed annually. [2] Unlike many other SEC filings, Form PF filings are not public.

The new SEC Form PF requirements include:

  • new quarterly event-based reporting for certain significant events involving all private equity fund advisers; and
  • new categories of information for “large private equity fund advisers” (advisers that manage over $2 billion in private equity fund AUM) on fund strategies, fund-level borrowings and fund general partner (“GP”) and limited partner (“LP”) clawbacks, as well as certain expanded information for existing categories.

For the new event-based reporting requirements, the effective/compliance date is six months after the date of publication in the Federal Register. For the amendments to the existing sections of Form PF, the effective/compliance date is one year after the date of publication in the Federal Register (meaning such amendments will not impact the annual Form PF filings for advisers with a December fiscal year end until Form PF filings due in 2025).


Florida Passes Farthest-Reaching Anti-ESG Law to Date

Leah Malone is a Partner and Emily B. Holland is Counsel, at Simpson Thacher and Bartlett LLP. This post is based on a Simpson Thacher & Bartlett LLP memorandum by Ms. Malone, Ms. Holland, Carolyn S. Houston, and May Mansour. 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; Reconciling Fiduciary Duty and Social Conscience: The Law and Economics of ESG Investing by a Trustee (discussed on the Forum here) by Max M. Schanzenbach and Robert H. Sitkoff; and Exit vs. Voice (discussed on the Forum here) by Eleonora Broccardo, Oliver Hart and Luigi Zingales.

On May 2, 2023, Florida’s Governor Ron DeSantis signed into law a bill designed to block the consideration of ESG factors in investment decisions. Going further than similar laws enacted in other states, [1] with the passage of House Bill 3 [2] (“HB 3”), Florida presents itself as a new standard-bearer in America’s anti-ESG movement. In requiring that investment decisions (and proxy voting decisions) for state pension assets be made on the basis of “pecuniary factors” only, the law echoes bills already passed in other states. But HB 3 also limits investment decisions for local governments, trust funds, and the state’s CFO. It prohibits the issuance of any ESG bonds in the state, limits state contracting, redefines what it means to be a qualified public depository, and imposes new external communications disclaimer requirements.

Below, we summarize the key provisions of HB 3 and offer a comparison against some of the anti-ESG laws on the books in other states. [3]


Modernization of Beneficial Ownership Reporting Rule Proposal

Jonathan H. Gaines and David S. Rosenthal are Partners and Christopher Soares is an Associate at Dechert LLP. This post is based on their Dechert memorandum. Related research from the Program on Corporate Governance includes The Law and Economics of Equity Swap Disclosure (discussed on the Forum here) by Lucian Bebchuk; The Law and Economics of Blockholder Disclosure (discussed on the Forum here) by Lucian Bebchuk and Robert J. Jackson Jr.; and Pre-Disclosure Accumulations by Activist Investors: Evidence and Policy by Lucian Bebchuk, Alon P. Brav, Robert J. Jackson Jr., and Wei Jiang. 

The U.S. Securities and Exchange Commission (the “SEC”) announced on April 28, 2023, that it has reopened the comment period for its February 2022 Modernization of Beneficial Ownership Reporting rule proposal (the “Proposed Rule”). As discussed in our OnPoint on the proposal, the Proposed Rule would amend the beneficial-ownership reporting requirements under Sections 13(d) and 13(g) of the Securities Exchange Act of 1934, among other changes, by accelerating the filing deadlines for both Schedule 13D and Schedule 13G. The public comment period will now remain open until June 27, 2023, or until 30 days after the date of publication of the reopening release in the Federal Register, whichever is later.


Weekly Roundup: May 19-25, 2023

More from:

This roundup contains a collection of the posts published on the Forum during the week of May 19-25, 2023

The State of Climate Investing

Anatomy of a Run: The Terra Luna Crash

Unlocking the Investment Potential of “S” in ESG

Importance of Special Litigation Committees in Maintaining Board Control Over Derivative Litigation

Diversity, Equity, and Inclusion

Venture Predation

2022 Asset Stewardship Report: Engagement and Voting

Page 1 of 6
1 2 3 4 5 6