Monthly Archives: October 2023

Corporate Governing: Promises and Risks of Corporations as Socio-Economic Reformers

Posted by Matteo Gatti (Rutgers), on
Tuesday, October 3, 2023
, , ,
More from:

Matteo Gatti is a Professor of Law at Rutgers Law School. This post is based on his working 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, Kobi Kastiel, and Roberto Tallarita; and Will Corporations Deliver Value to All Stakeholders? (discussed on the Forum here) by Lucian A. Bebchuk and Roberto Tallarita.

Corporations are increasingly active in public affairs across a range of critical issues such as racial justice, gender parity, climate change, and more. This trend has given rise to two phenomena: corporate socio-economic advocacy and government substitution. Together, they form what I refer to as “corporate governing.”

Corporate Socio-Economic Advocacy: In this aspect of corporate governing, companies align themselves with (typically progressive) causes and actively participate in policy initiatives. They provide expertise, coordination, and resources to further political causes that resonate with their values.

Government Substitution: A lesser discussed but equally important facet of corporate governing involves corporations stepping in to perform quasi-governmental functions when the government either cannot or chooses not to. They tackle tasks traditionally handled by governments, often with the aim of offering improved conditions to society, particularly their employees. For instance, they may provide better healthcare benefits or support underrepresented communities.

READ MORE »

Director Elections under the Microscope

Posted by Edna Twumwaa Frimpong, Diligent Market Intelligence, on
Monday, October 2, 2023
, , ,
More from: ,

Edna Twumwaa Frimpong is the Head of International Research at Diligent Institute. This post is based on her Diligent memorandum. Related research from the Program on Corporate Governance includes The Myth of the Shareholder Franchise (discussed on the Forum here) by Lucian A. Bebchuk; and Universal Proxies (discussed on the Forum here) by Scott Hirst.

“Proxy advisors Glass Lewis and ISS appear to be taking opposing sides when it comes to issuing recommendations on directors.”

Proxy season offers shareholders essential vision into how companies are reacting to various risks and opportunities, which often results in issuers being confronted with tough questions from key stakeholders, an issue that has likely become more common, given the current unstable business environment. The first half of 2023 demonstrated that a growing portion of investors are opposing directors on a global scale, and there are a variety of reasons why this is the case.

According to Diligent Market Intelligence (DMI) data, there is a growing level of dissent against director re/elections. and there are a variety of reasons why this is so. Usually, shareholders opt to vote against director re/elections to flag their dissatisfaction with governance issues, ESG shortcomings and the broader strategic direction of a company.

The stakes are high and director re/elections are becoming a popular tool with which investors can send a clear message that they expect better from a company. In the first half of 2023, support for global director re/elections has declined to 95.6%, compared to 96.4% and 96.1% throughout 2021 and 2022, respectively.

READ MORE »

Secret and Overt Information Acquisition in Financial Markets

Posted by Yan Xiong (The Hong Kong University of Science and Technology), Liyan Yang (University of Toronto), on
Monday, October 2, 2023
, , ,
More from: ,

Yan Xiong is an Assistant Professor of Finance at The Hong Kong University of Science and Technology, and Liyan Yang is a Professor of Finance at the Rotman School of Management, University of Toronto. This post is based on their paper forthcoming in The Review of Financial Studies. Related research from the Program on Corporate Governance includes 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 Brav, Robert J. Jackson Jr., and Wei Jiang.

In February 2020, Castlefield, a U.K. investment company, publicly disclosed on its website a site visit it conducted with Alumasc, a U.K.-based supplier of premium building products. Site visits are considered costly and significant activities for investors to acquire information. Investors may have incentives to keep secret these activities to maintain their trading advantage over the market. Therefore, it raises the question of why an investor would voluntarily disclose the incidence of their site visits.

In fact, the mandatory disclosure of corporate site visits has been a subject of debate. The idea can be viewed as an extension of Regulation Fair Disclosure (Reg FD), which aims to prevent selective disclosure of material nonpublic information and ensure a level playing field for all investors. While the United States has not adopted a similar requirement, China has mandated the disclosure of site visits to enhance transparency.

READ MORE »

California’s Proposed Bills Require Reporting on Climate Emissions and Risks

Posted by David A. Bell, Ron C. Llewellyn and Emily Sacks-Wilner, Fenwick & West LLP, on
Sunday, October 1, 2023
, , ,
More from: , , ,

David A. Bell is a Partner, and Ron C. Llewellyn and Emily Sacks-Wilner are Counsels at Fenwick & West LLP. This post is based on their Fenwick 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; 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, 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.

While all eyes are on proposed federal and European climate disclosure rules, the California legislature passed two climate-related bills that overlap somewhat with the Securities and Exchange Commission (SEC)’s proposed climate rules (see our client alert on the proposal). Senate Bill 253, the Climate Corporate Data Accountability Act, requires California’s State Air Resources Board (CARB) to adopt regulations requiring U.S. companies that do business in California to publicly disclose their Scope 1, Scope 2 and Scope 3 greenhouse gas emissions. Companies will also need to receive independent third-party assurance of their Scope 1 and 2 emissions data to start, with the potential for Scope 3 emissions assurance if CARB establishes such a requirement. Senate Bill 261, Greenhouse Gases: Climate-Related Financial Risk, requires companies to publicly disclose a climate-related financial risk report regarding their climate-related financial risks and any risk mitigation and adaptation measures for such risks. These bills, if adopted, would apply to private and public companies with specified revenue levels that also do business in California—and impose significant burdens in terms of compliance efforts and related expenses.

Notably, SB 253 was introduced and failed in a prior legislative session, but there seems to be a larger amount of support this time around, including from companies like Apple. The California Assembly and Senate passed and sent the bills to Governor Gavin Newsom, who has until October 14 to sign or veto them.

READ MORE »

Page 6 of 6
1 2 3 4 5 6