Monthly Archives: July 2023

BlackRock to Expand Proxy Voting Choice to Its Largest ETF

Joud Abdel Majeid is a Senior Managing Director and is the Global Head of Investment Stewardship, Salim Ramji is a Senior Managing Director and is Global Head of iShares and Index Investments, and Jessica Burt is Head of Global Platform and Business Strategy for Investment Stewardship, at BlackRock Inc. This post is based on their announcement.

On July 17, BlackRock announced that, subject to iShares Board approval, it plans to expand its Voting Choice program to its largest ETF – the iShares Core S&P 500 ETF (IVV) with $305 billion [1] in assets under management (AUM). With this newly proposed expansion, BlackRock is empowering over three million [2] IVV shareholder accounts and more than half its index equity AUM to be eligible to participate in Voting Choice.

Innovation and technology have led to greater choice and access in investing strategies and products. Today’s millions of investors can choose among thousands of low-cost, high-quality exposures across asset classes and markets. BlackRock believes that greater choice should extend to proxy voting, and we are committed to a future where every investor can participate in the shareholder voting process.

Nearly two years ago, BlackRock pioneered an industry movement by launching Voting Choice, making proxy voting easier and more accessible for eligible institutional clients, including public and corporate pension funds serving more than 60 million [3]  people globally.


Weekly Roundup: July 14-20, 2023

More from:

This roundup contains a collection of the posts published on the Forum during the week of July 14-20, 2023.

Investor Support of E&S Proposals

What Constitutes a Sale of “All or Substantially All” of a Company’s Assets

Share Buybacks and Executive Compensation: Assessing Key Criticisms

2023 Private Company Board Survey Insights

U.S. CEO Compensation Advantage Grows vs. U.K. Peers

H1 2023 Review of Shareholder Activism

Revisiting The New Paradigm

Incentives Linked to ESG Metrics Among S&P 500 Companies

Stakeholder Capitalism’s Greatest Challenge: Reshaping a Public Consensus to Govern a Global Economy

Stakeholder Capitalism’s Greatest Challenge: Reshaping a Public Consensus to Govern a Global Economy

Michael P. Klain is an Associate at Wachtell Lipton Rosen & Katz, and Leo E. Strine, Jr. is the Michael L. Wachter Distinguished Fellow at the University of Pennsylvania Carey Law School; Senior Fellow, Harvard Program on Corporate Governance; Of Counsel, Wachtell, Lipton, Rosen & Katz; and former Chief Justice and Chancellor, the State of Delaware. 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 Will Corporations Deliver Value 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 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.

The Berle XIV:  Developing a 21st Century Corporate Governance Model Conference asks whether there is a viable 21st Century Stakeholder Governance model.  That important question challenges all of us to think more like Adolf Berle himself:  to confront the world as it is, to move beyond the trivial, and to address the deeper implications of corporate power for our world.  In our keynote article for the conference, [here], we argue that to answer that question yes requires, to use Berle’s term, restoring a “public consensus” throughout the global economy within which corporations and institutional investors now exert power, supporting not just stakeholder governance, but the balanced capitalism system associated with the New Deal in the United States, and social democracy in the wider Organization for Economic Cooperation and Development community.  We call that system “New Deal capitalism,” because Berle viewed New Deal capitalism as creating a structure within which corporations could operate in a way good for all their stakeholders.

In 2023, the world faces problems directly related to, and often caused by, corporations and the large institutional investors who dominate their governance.  The growth of the real economy and huge corporations has diminished the ability of any single nation to create a public consensus safely constraining corporate power.  The influence of large institutional investors has grown exponentially and internationally and has globalized corporate governance policies that make corporations more subject to the immediate demands of the stock market.  These developments have helped create two fundamental problems threatening societies across the globe:  inequality and climate change.


Testimony at the Committee on Financial Services hearing: “Oversight of the Proxy Advisory Industry”

Eric Shostal is Senior Vice President of Research and Engagement at Glass, Lewis & Co. This post is based on his testimony.

About Glass Lewis

Founded in 2003, Glass Lewis provides proxy research and/or vote management services to more than 1,300 institutional investor clients — primarily public pension funds, mutual funds and other institutions that invest on behalf of individual investors and have a fiduciary duty to act, including through proxy voting, in the best interests of their beneficiaries. While, for the most part, investor clients use Glass Lewis research to help them make proxy voting decisions, these institutions also use Glass Lewis research when engaging with companies before and after shareholder meetings. Further, through Glass Lewis’ web-based vote management system, Viewpoint, Glass Lewis provides investor clients with the means to receive, reconcile, and vote ballots according to custom voting guidelines and record-keep, audit, report, and disclose their proxy votes.

The Role of a Proxy Advisor

Proxy advisors play an important support role, providing resources and technical, subject-matter expertise to help institutional investors meet their fiduciary responsibility to vote securities on behalf of their participants and beneficiaries in a cost-effective way. As the Securities and Exchange Commission (“SEC”) has explained, “Contracting with proxy advisory firms . . . can reduce burdens for investment advisers (and potentially reduce costs for their clients) as compared to conducting them in-house.” [1]

As individual investors increasingly own stock indirectly, such as through mutual and pension funds, they are dependent on those institutional investors to vote on their behalf and act in their best interest. In order to do so both effectively and efficiently, institutional investors often leverage their resources by using the services of a proxy advisor. As the Council of Institutional Investors and a coalition of investors have explained:

Retail holders now invest much of their capital with institutional investors because they understand that institutional investors’ expertise and size bear the expectation of higher returns, lower costs and mitigated risks. Importantly, retail investors also understand that aggregating their individual holdings into larger, concentrated blocks through an institutional manager allows for more effective monitoring of company management.

Even so, institutional investors themselves face challenges in spending significant time and resources on voting decisions because the funds and other vehicles they manage receive only a portion of the benefits conveyed on all investors of the relevant enterprise.

Proxy advisors are a market-based solution to address many of these practical cost issues. Proxy advisors effectively serve as collective research providers for large numbers of institutional investors, providing these investors an affordable alternative to the high costs of individually performing the requisite analysis for literally hundreds of thousands of ballot proposals at thousands of shareholder meetings each proxy season. [2]


Incentives Linked to ESG Metrics Among S&P 500 Companies

Ted Jarvis is a Lead Consultant, and Jamie McGough and Donald Kalfen are Partners at Meridian Compensation Partners. This post is based on their Meridian Compensation Partners memorandum. Related research from the Program on Corporate Governance includes Paying for long-term performance (discussed on the Forum here) by Lucian Bebchuk and Jesse M. Fried.

Incentives Linked to ESG Metrics Among S&P 500 Companies

Overall Prevalence

In 2023, 73% of S&P 500 companies linked a portion of incentive compensation to the achievement of ESG metrics, up modestly from 68% in 2022. Although there is some variation by industry, a majority of companies in all sectors use one or more ESG metric in their executive incentive arrangements. However, the weighting on these metrics is low, typically 5%-15% of any short-term incentive opportunity. [ESG Incentive Practices at S&P 500 Companies]

Short-Term Incentives Remain Principal Focus

The overwhelming majority of companies using ESG metrics do so in their short-term incentive (STI) plans—71% in 2023, up from 66% in 2022. Usage of ESG metrics continues to be majority practice in all underlying industry sectors—in 6 of the S&P’s 11 industrial sectors, all companies incorporated ESG metrics in their STI plan (Communication Services, Consumer Staples, Energy, Health Care, Materials, and Utilities). The remaining 5 sectors were also strong users of ESG metrics, ranging from 92% to 97% utilization.

Alternatively, ESG in long-term incentive (LTI) plans is a distinct minority practice with only 9% of S&P 500 companies doing so. Those that do use ESG metrics in LTI plans are highly concentrated in the Utility industry (59% in 2023, up from 38% in 2022) where the focus is on Environmental metrics. Prevalence in other industries ranged from 4% (Materials) to 13% (Consumer Staples).

How ESG Metrics are Used

Unlike traditional financial and operational metrics, most ESG metrics are not individually measured and weighted. Instead, most companies use either scorecards and/or individual performance assessments.


Revisiting The New Paradigm

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, Steven A. RosenblumKaressa L. Cain, Elina Tetelbaum, and Carmen X. W. Lu. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here)  Will Corporations Deliver Value 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 Bebchuk, Kobi Kastiel, and Roberto Tallarita; 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; and Corporate Purpose and Corporate Competition (discussed on the Forum here) by Mark J. Roe.

In view of the attacks on “woke” corporations, ongoing legislative opposition to the consideration by investors and corporations of environmental, social and governance (ESG) issues, legal challenges to elements of ESG itself (notably, initiatives designed to further diversity, equity and inclusion), and the attendant political polarization, we undertook to revisit The New Paradigm: A Roadmap for an Implicit Corporate Governance Partnership Between Corporations and Investors to Achieve Sustainable Long-Term Investment and Growth that we prepared for the International Business Council of the World Economic Forum in September 2016.

When first published, The New Paradigm recognized the emerging recalibration of corporate governance as a collaboration among corporations, shareholders and other stakeholders working together to achieve long-term value and resist short-termism. In this framework, if a corporation, its board of directors and its CEO and management team are diligently pursuing well-conceived strategies that were developed with the participation of independent, competent and engaged directors, and its operations are in the hands of competent executives, investors will support the corporation and resist the call of short-term financial activists seeking to force short-term value enhancements without regard to longterm value implications.

We have considered the social, economic, political and legal developments which have followed the publication of The New Paradigm. Attacks by activists seeking short-term stock appreciation have surged to new record levels, bolstered by support from academics who continue to espouse the shareholder primacy arguments of Milton Friedman. Social and political issues have grown in intensity, with certain political candidates and activists seeking to outdo each other in their anti-“woke” attacks and members of Congress looking to block efforts to address ESG issues, notwithstanding calls from business leaders and regulators abroad for action.


Testimony at the Committee on Financial Services’s hearing: “Oversight of the Proxy Advisory Industry”

Subodh Mishra is Global Head of Communications at Institutional Shareholder Services (ISS) Inc. This post is based on the testimony of Steven Friedman, General Counsel at Institutional Shareholder Services.

My name is Steven Friedman, and I am the General Counsel of ISS. I have worked for ISS for nearly 20 years, having originally joined the company in September 2003 as its General Counsel, with a brief break in my tenure in the mid-2010s.

I hope my testimony today contributes to a constructive and fact-based discussion about proxy advisers by (1) explaining proxy advisers’ important, but limited, role in the proxy voting process; (2) describing how ISS is currently regulated in the United States and our responsibilities as a fiduciary to our institutional investor clients; and (3) conveying the facts about the work that ISS has been privileged to do in serving our institutional investor clients since our founding more than 35 years ago.

About ISS.

ISS was founded in 1985 in an era of aggressive corporate practices such as raiding, greenmail, and poison pills, when investors were seeking to more effectively exercise their rights as shareholders and their voice in corporate governance in a meaningful and informed way.


Vanguard’s Approach to Board Responsiveness

John Galloway is Global Head of Investment Stewardship at Vanguard, Inc. This post is based on a publication by Vanguard Investment Stewardship.

The responsiveness of corporate boards to their shareholders—and other stakeholders—is a common topic of conversation in our discussions with portfolio company leaders and board members. This thematic Insight outlines how the Vanguard Investment Stewardship team, on behalf of Vanguard-advised funds, [1] thinks about the role a board plays in listening to and responding to shareholder perspectives.

What we look for on behalf of Vanguard-advised funds

Boards of directors are elected by shareholders, including Vanguard-advised funds, to serve in their collective best interests. As a result, we consider it to be a good governance practice for boards to provide channels through which their constituents can provide input and be responsive over time to feedback they receive. Shareholder perspectives and feedback can be shared with boards in different forms:

  • Boards have always received shareholder input through votes cast on matters at their annual meetings. While the matters to be voted on cover a wide range of topics—and include proposals from both management and shareholders—the eventual votes are binary (for/against) and may lack the nuance or clarity of other channels.
  • To supplement messaging through the proxy ballot, many companies also have a process for written communication to their board. For example, U.S. companies are required to disclose in their proxy statement whether, and if so how, communication with their board may be submitted. [2]
  • More and more directors—often in conjunction with company leaders—are receiving input through engagement with shareholders. This may be, among other things, routine direct dialogue with a subset of stockholders, outreach either in preparation for or response to matters of concern, or engagement with proponents of a shareholder proposal.


H1 2023 Review of Shareholder Activism

Jim Rossman is Global Head of Shareholder Advisory, Christopher Ludwig is a Managing Director, and Cameron Fitzgerald is a Vice President at Barclays. This post is based on a Barclays memorandum by Mr. Roseman, Mr. Ludwig, Mr. Fitzgerald, Peter da Silva Vint and James Potts. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian A. Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here); Dancing with Activists by Lucian A. Bebchuk, Alon Brav, Wei Jiang, and Thomas Keusch (discussed on the Forum here); and Who Bleeds When the Wolves Bite? A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System (discussed on the Forum here) by Frankl and Kushner Leo E. Strine, Jr.

Legal & Regulatory Developments

Universal Proxy Key Takeaways

  • Universal Proxy has heightened anxiety-levels for companies
    • Many companies amended charters and bylaws in anticipation of universal proxy without incident (~44% of the S&P 500)
    • However, a handful of companies faced litigation over bylaw amendments which were viewed as overburdensome in terms of disclosure requirements
      (e.g., Masimo by Politan and Primo Water by Legion)
  • Activists have been successful at the ballot box this year, winning a record 29 seats, as Universal Proxy has enabled ISS to recommend candidates with more
    precision and voters to pick and choose candidates with greater ease
  • We have yet to see a surge in single-issue activist campaigns, capitalizing on the potential to run lower-cost Board seat campaigns
    • Zero Board seat campaigns in H1 2023 by activists typically associated with Environmental or Social-focused shareholder proposals (e.g., Majority Action,
      As You Sow)


Disney: Speaking Out on Issues of Social Significance Within Board’s Business Judgment

Cydney S. Posner is Special Counsel at Cooley LLP. This post is based on her Cooley memorandum, 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 The Illusory Promise of Stakeholder Governance (discussed on the Forum here) by Lucian A. Bebchuk and Roberto TallaritaFor Whom Corporate Leaders Bargain (discussed on the Forum here) by Lucian Bebchuk, Kobi Kastiel, Roberto Tallarita and Stakeholder Capitalism in the Time of COVID (discussed on the Forum here) both by Lucian Bebchuk, Kobi Kastiel, 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.

Boards and their advisors seeking to navigate the culture wars and their often conflicting pressures from a variety of stakeholders and outside groups may find some comfort and guidance in this recent decision from the Delaware Chancery Court in Simeone v. The Walt Disney Company.  The case involved a books-and-records demand from a stockholder asserting a potential breach of fiduciary duty by Disney’s directors and officers in their determination to publicly oppose Florida’s so-called “Don’t Say Gay” bill. Originally, Disney was silent on the bill. However, following reproaches from employees and other creative partners, Disney’s board deliberated at a special meeting, and the company changed course and publicly criticized the bill.  The Court declined to grant the plaintiff’s books-and-records request, concluding that the plaintiff had not provided a credible basis from which to infer wrongdoing and thus had not “demonstrated a proper purpose to inspect books and records.” Rather, the Court concluded, the Disney board had made a business decision to reverse course—“a decision that cannot provide a credible basis to suspect potential mismanagement irrespective of its outcome.”  Under Delaware’s business judgment rule, directors have “significant discretion to guide corporate strategy—including on social and political issues.”  Importantly, the Court confirmed that, in exercising its business judgment, a board may take into account the interests of non-stockholder corporate stakeholders where those interests are “rationally related” to building long-term value.

Background. In February 2022, the Florida House passed HB 1557, which “limits instruction on sexual orientation or gender identity in Florida classrooms.” As described by the Court, because Disney had provided financial support for some of the bill’s sponsors, it “came under scrutiny,” and its response—an internal memo indicating that it supported organizations that championed diversity—was “met with pervasive disappointment and frustration from Disney employees and creative partners.” When the bill was subsequently passed in the Florida Senate, Disney’s board held a special meeting devoted to “Political Engagement and Communications,” at which the board discussed its “communications plan, philosophy and approach regarding Florida legislation and employee response.” At the Disney annual stockholders’ meeting the next day, the company’s CEO acknowledged that the company’s original behind-the-scenes approach to engagement on the bill “didn’t quite get the job done.” He signaled plans for more active public opposition and reported on his call with the state’s Governor, during which he had expressed “disappointment and concern” about the bill. At a regular board meeting that same day, the board again discussed the Florida legislation, company values and political engagement.  The next day, the Governor criticized companies “‘like [] Disney,’” stating that “Florida policy should be ‘based on the best interest of Florida citizens, not on the musing of woke corporations.’”


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