Monthly Archives: November 2023

US Public Company Board Diversity in 2023: How Corporate Director Diversity Can Contribute to Board Effectiveness

Merel Spierings is Senior Researcher at The Conference Board ESG Center in New York. This post relates to Corporate Board Practices in the Russell 3000, S&P 500, and S&P MidCap 400: Live Dashboard, a live online dashboard published by The Conference Board and ESG data analytics firm ESGAUGE, in collaboration with Debevoise & Plimpton, the KPMG Board Leadership Center, Russell Reynolds Associates, and The John L. Weinberg Center for Corporate Governance at the University of Delaware. Related research from the Program on Corporate Governance includes The Perils and Questionable Promise of ESG-Based Compensation (discussed in the Forum here) by Lucian Bebchuk and Roberto Tallarita; Paying for long-term performance (discussed in the Forum here) by Lucian Bebchuk and Jesse Fried; and Share Repurchases, Equity Issuances, and the Optimal Design of Executive Pay (discussed in the Forum here) by Jesse Fried.

This report documents corporate governance trends and developments at US publicly traded companies—including information on board composition and diversity, the profile and skill sets of directors, and policies on their election, removal, and retirement. The analysis is based on recently filed proxy statements and complemented by the review of organizational documents (including articles of incorporation, bylaws, corporate governance principles, board committee charters, and other corporate policies made available in the Investor Relations section of companies’ websites). The report also presents key insights gained during two Chatham House Rule meetings: a focus group discussion with in-house governance leaders in which we discussed their views on current trends in corporate boardrooms, and a roundtable discussion with over 30 corporate directors, C-Suite executives, and governance professionals, in which we discussed how to harness the advantages of having a diverse board.

The reported level of diversity on US corporate boards seemed to reach a plateau even before litigation challenging corporate diversity programs in the wake of the Supreme Court’s decision in Students for Fair Admissions, Inc. v. President and Fellows of Harvard College.[1] In the current environment, it is critical for boards to have a clear consensus on how diversity and commonality among directors contribute to effectiveness. This report addresses the current state of diversity in boardrooms and provides insights on how to maximize the benefits of a diverse board.


ConEd Is Not Dead In Delaware

Neil Q. Whoriskey and Scott Golenbock are Partners at Milbank LLP. This post is based on their Milbank 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 Are M&A Contract Clauses Value Relevant to Target and Bidder Shareholders? ( discussed on the Forum here) by John C. Coates, Darius Palia, and Ge Wu; and The New Look of Deal Protection (discussed on the Forum here) by Fernan Restrepo and Guhan Subramanian.

This is the price paid for allowing our hopes, rather than established law, to guide public merger agreement drafting for the last 18 years.  Con Edison v Northeast Utilities[1], a 2005 Second Circuit decision regarding a New York law governed merger agreement, found that, absent clear contractual language to the contrary, a target company could not collect lost shareholder premium as damages for the breach of a merger agreement. ConEd caused quite a stir in public M&A circles, with some asserting that it caused every public merger agreement to be converted into a mere option agreement, where, if the buyer did not wish to close, it had only to pay the target’s out-of-pocket costs. This may have been a bit extreme, but given how infrequently specific performance has been ordered to remedy a failure to close, it probably was not far off the mark.


ESG and Public Pension Investing in 2023: A Year-To-Date Recap and Analysis

Joshua Lichtenstein and Michael Littenberg are Partners, and Reagan Haas is an Associate at Ropes & Gray LLP. This post is based on a Ropes & Gray memorandum by Mr. Lichtenstein, Mr. Littenberg, Ms. Haas, Jonathan Reinstein and Alexa Voskerichian. 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; Big Three Power, and Why it Matters (discussed on the Forum here) by Lucian A. Bebchuk and Scott Hirst; Companies Should Maximize Shareholder Welfare Not Market Value (discussed on the Forum here) by Oliver Hart and Luigi Zingales; 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.

Since 2021, Ropes & Gray has been actively tracking the various approaches states have taken on how or whether environmental, social and governance (ESG) factors should be applied to the investment decisions for public retirement systems. States have used legislative, administrative and enforcement mechanisms to address this area, which has been complemented by Congressional Republicans’ various attempts to shine a spotlight on ESG in recent months. Judging by the significant uptick in activity this year at both the state and federal levels, the fight over ESG in public investments is far from over and may even be just beginning.

This white paper seeks to provide context for understanding what has happened in the states in 2023 along with considerations that asset managers should be mindful of when engaging with public retirement plans. In the first part of this paper, we provide an overview of current trends in state ESG legislation and regulation along with background for how we got to this point. In the second part, we provide a recap of what has transpired in each state along with an assessment of the state’s policymaking regarding ESG and public pension investments.


Criminal Subsidiaries

Andrew K. Jennings is an Associate Professor of Law at Emory University. This post is based on his recent article forthcoming in the Fordham Law Review.

Each year, Department of Justice (DOJ) components resolve a handful of corporate criminal cases with subsidiary-only conviction (SOC) settlements. In SOC settlements, a subsidiary pleads guilty to offenses that its parent or siblings share liability for. From 2013 to 2022, SOC settlements occurred in at least 3.3% of all federal corporate criminal resolutions, including 5.6% of cases in which prosecutors sought an entity conviction. For parent companies and their other subsidiaries, isolating conviction to one entity protects the rest of the corporate group from criminal collateral consequences. This result can be referred to as criminal entity partitioning, a subset of the entity partitioning that serves as a core function of organizational law. For prosecutors, SOC settlements allow greater flexibility in balancing between the need to avoid social cost that could result from fully prosecuting a firm’s culpable constituents (e.g., the need to avoid the “corporate death penalty”) with the need to deter and punish corporate crime, prevent recidivism, and achieve other criminal-legal ends. In other words, SOC settlements allow prosecutors to obtain entity convictions when appropriate, while avoiding the regulatory and other collateral consequences associated with parent-level convictions.


Remarks at the 2023 Democracy Forum

Barack Obama served as the 44th President of the United States. This post is based on Mr. Obama’s remarks at the 2023 Democracy Forum.

Hello, Chicago! Thank you, Aleena, for that outstanding introduction. I will say that Michelle would be jealous to see that she has a six-month old at home and she doesn’t look tired. More importantly, thank you for everything that you’re doing to connect people with jobs and reduce inequality in the city that we love.

I want to thank our amazing panelists, who you’ve already heard from and who you’re going to hear from, all the leaders who are part of our network group who’ve come from far and wide, all the experts who generously agreed to join us for our second annual Democracy Forum. I want to say just how blessed we are to have you here.

Now, I have always believed that the ideas of a now 62-year-old, gray haired, although still relatively fit, ex-president are less relevant than the ideas and insights of you, a new generation of leaders.

That’s why after leaving the White House, Michelle and I started the Obama Foundation, to inspire and empower and connect those of you who are going to be driving change for years to come. We now have a global network of hundreds of young leaders from practically every continent, who are tackling some of the most important issues of our time.


2023 CPA-Zicklin Index Shows Strong Increase in Number of Trendsetter, Top-Scoring Companies

Dan Carroll is a Vice President, and Bruce F. Freed is a President and Co-founder at the Center for Political Accountability. This post is based on their CPA memorandum. Related research from the Program on Corporate Governance includes The Untenable Case for Keeping Investors in the Dark (discussed on the Forum here) by Lucian Bebchuk, Robert J. Jackson, Jr., James Nelson, and Roberto Tallarita; Shining Light on Corporate Political Spending (discussed on the Forum here) by Lucian Bebchuk, and Robert J. Jackson Jr; and Good Corporate Citizenship We Can All Get Behind?: Toward A Principled, Non-Ideological Approach To Making Money The Right Way (discussed on the Forum here) by Leo E. Strine.

With the 2024 election season ramping up, more leading U.S. corporations than ever before are receiving the highest scores for political spending disclosure and accountability, according to the annual benchmarking study recently released by the Center for Political Accountability and The Wharton School’s Zicklin Center for Governance and Business Ethics.

The number of public corporations in the S&P 500 Index getting scores of 90 percent or better, called Trendsetters, jumped from 89 last year to a record 100 now, according to data in the 2023 CPA-Zicklin Index of Corporate Political Disclosure and Accountability.

It is the highest number of companies receiving Trendsetter status – over one-fifth of the S&P 500 companies evaluated – since the benchmarking study was expanded in 2015 from covering the S&P 100. (There were 28 top-scoring companies then.) The companies improving their scores to join the Trendsetter ranks this year are Meta Platforms Inc.; Alliant Energy Corp.; American Electric Power Company Inc.; Archer Daniels Midland Co.; Celanese Corp.; CMS Energy Corp.; Equinix Inc.; Fifth Third Bancorp; Freeport-McMoRan Inc.; Gilead Sciences Inc.; PG&E Corp.; Pinnacle West Capital Corp.; Prologis Inc.; Public Service Enterprise Group; Raytheon Technologies Corp.; Regions Financial Corp.; ServiceNow Inc.; Texas Instruments Inc.; Whirlpool Corp.; and Yum Brands Inc.


More Women Take CEO Jobs But Parity Still Decades Away

Luke Meynell Co-leads the Board & CEO Advisory Partners in the UK at Russell Reynolds Associates. This post is based on his Russell Reynolds memorandum. 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.

Our analysis of the 1,822 companies listed on the world’s leading stock indices reveals 142 CEOs left their positions so far this year. This compares to 148 across the same period in 2022, which was a record year for CEO turnover.

This high level of departures should be creating an opportunity to accelerate progress on gender parity among CEOs—and it is, to an extent. In 2023 so far, 15% (on average) of those taking a CEO role have been women. This is up 9.7% across the same period in 2018.


Real World Examples of Circumstances That May Taint a Deal Process

Jenness E. Parker and Sonia K. Nijjar are Partners, and Claire K. Atwood is an Associate at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on their Skadden memorandum. Related research from the Program on Corporate Governance includes Are M&A Contract Clauses Value Relevant to Target and Bidder Shareholders? (discussed on the Forum here) by John C. Coates, IV, Darius Palia, and Ge Wu; and The New Look of Deal Protection (discussed on the Forum here) by Fernan Restrepo and Guhan Subramanian.

Key Points

  • Four recent cases illustrate circumstances that may expose a deal to challenge because of a conflict of interest, and the ways a board or special committee may help insulate a deal process from someone with a potential conflict.
  • There are no hard and fast rules to apply where there is a potential conflict because the factual backgrounds and relationships in strategic corporate transactions are always highly complex, and there is no “perfect” deal process ordained by the courts.

Sometimes when a board is considering a strategic transaction, it may find that a key figure who can influence the deal process — for example, a founder, controller or CEO-negotiator — has a potential conflict of interest. They may be on both sides of the deal, or they may simply have personal motivations and interests that are not shared by all stockholders. Such conflicts can arise on either the buy- or sell-side.

In this situation, it will fall to the board or a special committee to find the best way to address any conflict. Each situation comes with its own set of facts, so there are no all-purpose rules that apply in every case. But four recent Delaware decisions scrutinized deal processes that were challenged by stockholders because influential figures, negotiators or other fiduciaries involved in the process had conflicts. These rulings offer examples both of behavior that could be cast in an unfavorable light if a deal is challenged, and approaches boards have taken that courts found were helpful to insulate the conflicted person and preserve the integrity of the deal process.


Regulatory Spotlight on Private Funds

Meaghan Kelly, David Blass, and Michael Osnato are Partners at Simpson Thacher & Bartlett LLP. This post is based on a Simpson Thacher memorandum by Ms. Kelly, Mr. Blass, Mr. Osnato, Nicholas Goldin, Michael Wolitzer, and Marc Berger.


The end of September marked the close of the 2023 fiscal year for the United States Securities and Exchange Commission (the “SEC”). In remarks last week, SEC Director of Enforcement, Gurbir Grewal, noted that, “[w]hile we have not yet released our 2023 fiscal year-end numbers, I can give you a sneak preview: we had another incredibly productive year on behalf of the investing public.”[1] Focusing on private funds, Director Grewal stated earlier this year that private funds were a “substantive priority area” for the Division of Enforcement—and that has certainly been borne out in the 2023 docket.[2]

I. Examinations & Enforcement

In this guide, we discuss the following topics from recent examinations and enforcement actions: (i) the calculation of management fees in the post-commitment period; (ii) allocation of expenses; (iii) the amended Marketing Rule; (iv) the Custody Rule; and (v) off-channel communications. The first four topics were specifically identified as priorities for the Division of Examinations in connection with its release this month of its 2024 Examination Priorities.


California enacts anti-greenwashing requirements

Loyti Cheng, Michael Comstock, and David A. Zilberberg are Counsels at Davis Polk & Wardwell LLP. This post is based on a Davis Polk memorandum by Ms. Cheng, Mr. Comstock, Mr. Zilberberg, Emily Roberts, Stephen A. Byeff, and Timothy J. Sullivan. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) and Does Enlightened Shareholder Value Add Value? (discussed on the Forum here) both by Lucian A. Bebchuk and Roberto Tallarita; How Twitter Pushed Stakeholders Under The Bus (discussed on the Forum here) by Lucian A. Bebchuk, Kobi Kastiel, and Anna Toniolo; 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.

Governor Newsom has signed the Voluntary Carbon Market Disclosures Act, a law intended to combat “greenwashing” by requiring disclosure on net zero, carbon neutrality and emissions reduction claims, as well as voluntary carbon offsets purchased, used, marketed or sold in California. The VCMDA, which becomes effective January 2024, applies to public and private companies that operate and make claims or purchase or use VCOs in California, or that sell or market VCOs in California.

On October 7, 2023, California Governor Gavin Newsom signed AB-1305, the Voluntary Carbon Market Disclosures Act (VCMDA).[1] The VCMDA is intended to address “greenwashing” by requiring detailed disclosure of the methodology for tracking and verifying claims made within California by entities operating within California regarding net zero, carbon neutrality or emissions reductions, as well as disclosure regarding voluntary carbon offsets (VCOs) purchased, used, marketed or sold within California. The VCMDA will become effective on January 1, 2024 and will require any covered disclosures to be updated at least annually. Violations of the VCMDA are subject to a civil penalty up to $2,500 per day per violation, not to exceed $500,000.


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