Yearly Archives: 2023

How To Fix The C-suite Diversity Problem

Posted by Tina Shah Paikeday, and Nisa Qosja, Russell Reynolds Associates, on
Saturday, February 25, 2023
, , , , ,
More from: , ,

Tina Shah Paikeday is the Global Head of the Diversity, Equity & Inclusion Practice, and Nisa Qosja is a Knowledge Consultant at Russell Reynolds Associates. This post is based on their 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.

What is the state of diversity in the C-suite?

Diversity, Equity, and Inclusion have been climbing the board and CEO agendas for decades. But while we’ve seen strong commitments and progress in entry-level roles across industries, we’re still a long way off from achieving true equity at the top.

So, what’s holding leaders back? And how can organizations finally make progress for the good of the business, society, and global economies?

To understand the state of C-suite diversity in America, and find ways to create truly representative leadership, we analyzed 1,583 executives at the 100 largest companies in the S&P500—what we call the S&P100.

The headline finding is that organizations still have a lot of work to do to ensure C-suite equity.

  • C-suites in Corporate America are still disproportionately white and male. We see severe under-representation of women, Black, and Hispanic/Latino executives in most C-suite positions.
  • Asian leaders experience a 25% representation decline from P&L leadership to the CEO role whereas Whites experience a 10% increase from P&L leadership to the CEO role.
  • The lack of equity at the top isn’t due to a pipeline problem. The US workforce is diverse. Yet a lack of equity in assessing, developing, and promoting talent is undermining representation at the C-suite level.
  • Addressing top team imbalances requires revolution, not evolution. Without concerted effort, diversity imbalances will continue and grow as underrepresented groups don’t see role models they can aspire to be.

In this paper, we explore how succession planning can help plug diversity gaps at the executive level. We share detailed insights into the current C-suite composition, and detail five ways boards and corporate leaders can develop a diverse and sustainable pipeline of C-suite leaders.

READ MORE »

The 2023 board agenda

Posted by Carey Oven, Caroline Schoenecker and Bob Lamm, Deloitte & Touche LLP, on
Friday, February 24, 2023
, , , , ,
More from: , , ,

Carey Oven is National Managing Partner at the Center for Board Effectiveness and Chief Talent Officer, Caroline Schoenecker is an Experience Director, and Robert Lamm is an Independent Senior Advisor. This post is based on their Deloitte LLP memorandum.

Introduction

The more things change…

On the board’s agenda first focused on the upcoming year’s “hot topics” in January 2018.[1]  Looking at that publication five years later is instructive; it reminds us that while many new topics are likely to be on board agendas in 2023, some topics continue to be at the forefront of board consideration even if the details have changed in some respects.

Of course, many matters have been added to board agendas since 2018 and will remain priority items in 2023. Perhaps the most significant new matters relate to the corporation’s role in society at large. This topic came into focus in 2019, when the Business Roundtable published its “Statement on the Purpose of the Corporation,” [2]  leading to discussions, some of them intense and continuing to date, as to whether corporations owe duties to groups other than shareholders, such as employees, customers, suppliers, and the communities in which they operate. Other societal concerns that have impacted boardrooms include a myriad of events that may have contributed to the broader DE&I focus, which led companies and their boards to consider whether they provide equitable and inclusive work environments, and the COVID-19 pandemic, which continues to impact companies with respect to issues such as employee health and wellness and the fundamental nature of work and the workplace.

We discuss below some of the critical topics that have remained relatively constant in the past five years, as well as new and emerging topics that will likely be on the board’s agenda in 2023.

Board composition and skills

READ MORE »

Weekly Roundup: February 17-23, 2023

Posted by the Harvard Law School Forum on Corporate Governance, on
Friday, February 24, 2023

More from:

This roundup contains a collection of the posts published on the Forum during the week of February 17-23, 2023

Third-Party Risk Oversight

Posted by Dan Kinsella, Adam Thomas, Deloitte & Touche LLP, on Friday, February 17, 2023
Tags: , , , , ,

ESG: EU Regulatory Change and Its Implications

Posted by Lewis Davison, Fiona McNally and Charlotte North, BNY Mellon, on Saturday, February 18, 2023
Tags: , , , , ,

2022 Corporate Governance Trends in Silicon Valley and at Large Companies Nationwide

Posted by David A. Bell, and Ron C. Llewellyn, Fenwick & West LLP, on Sunday, February 19, 2023
Tags: , , , , , , , ,

2023 Proxy Season Preview

Posted by Allie Rutherford, Adrienne Monley, and Eric Sumberg, PJT Camberview, on Monday, February 20, 2023
Tags: , , , , ,

IPOs and SPACs: Recent Developments

Posted by Rongbing Huang (Kennesaw State University), Jay R. Ritter (University of Florida), and Donghang Zhang (University of South Carolina), on Monday, February 20, 2023
Tags: , , , , ,

Retail Financial Innovation and Stock Market Dynamics: The Case of Target Date Funds

Posted by Jonathan A. Parker (MIT), Antoinette Schoar (MIT), and Yang Sun (Brandeis International Business School), on Tuesday, February 21, 2023
Tags: , , , , ,

Public Companies and Politics: How to Co-Exist

Posted by David Lopez, and Jonathan Povilonis, Cleary Gottlieb Steen & Hamilton LLP, on Tuesday, February 21, 2023
Tags: , , , , ,

Meme Corporate Governance

Posted by Dhruv Aggarwal (Yale University), Albert H. Choi (University of Michigan), Alex Lee (Northwestern University), on Wednesday, February 22, 2023
Tags: , , , , , ,

Gender Diversity in the C-Suite

Posted by Gabrielle Lieberman, Russell Reynolds Associates, on Wednesday, February 22, 2023
Tags: , , , , ,

DOJ Doubles Down on Efforts To Incentivize Early Self-Reporting and Cooperation

Posted by Alessio Evangelista, Andrew Good, and Bora Rawcliffe, Skadden, Arps, Slate, Meagher & Flom LLP, on Thursday, February 23, 2023
Tags: , , , , ,

The Business of Securities Class Action Lawyering

Posted by Stephen Choi (New York University), Jessica M. Erickson (University of Richmond), Adam C. Pritchard (University of Michigan), on Thursday, February 23, 2023
Tags: , , , , ,

The Business of Securities Class Action Lawyering

Posted by Stephen Choi (New York University), Jessica M. Erickson (University of Richmond), Adam C. Pritchard (University of Michigan), on
Thursday, February 23, 2023
, , , , ,
More from: , ,

Stephen Choi is the Murray and Kathleen Bring Professor of Law at the New York University School of Law, Jessica M. Erickson is the Nancy Litchfield Hicks Professor of Law at the University of Richmond School of Law, and Adam C. Pritchard is the Frances and George Skestos Professor of Law at the University of Michigan Law School.  This post is based on their recent paper. Related research from the Program on Corporate Governance includes Rethinking Basic (discussed on the Forum here) by Lucian Bebchuk and Allen Ferrell.

Plaintiffs’ lawyers in the United States play a key role in combating corporate fraud. Shareholders who lose money due to fraud can file securities class actions to recover their losses, but most shareholders do not have enough money at stake to justify overseeing the cases filed on their behalf. As a result, plaintiffs’ lawyers control these cases, deciding which cases to file and how to litigate them. Recognizing the agency costs inherent in this model, the legal system relies on lead plaintiffs and judges to monitor these lawyers and protect the best interests of absent class members. Yet there is remarkably little data on the business of securities class action lawyers, leaving lead plaintiffs and judges to oversee this area without the tools to understand how it works.

Our latest article, The Business of Securities Class Action Lawyering, is the largest academic study to date of the law firms that help shareholders recover money lost to corporate fraud. Our study is based on hand-collected data from the case records of all federal securities fraud class actions filed against public companies between 2005 and 2018—approximately 2500 lawsuits. This data allows in-depth analysis of the business behind securities class action lawyering.

Our data yields a number of significant insights into this area of practice. We first examine the specific business models of the law firms that participate in these cases as plaintiffs’ lawyers, finding the business of securities class action lawyering is far more complex than prior scholarship has recognized. Contrary to conventional wisdom, there are not two tiers of plaintiffs’ law firms; instead, there are multiple tiers of firms, each with its own client base, litigation patterns, and revenue model. We also find a previously unrecognized category of firms playing secondary roles in these cases, including many that appear to connect lead counsel firms with investors willing to serve as lead plaintiffs.

READ MORE »

DOJ Doubles Down on Efforts To Incentivize Early Self-Reporting and Cooperation

Posted by Alessio Evangelista, Andrew Good, and Bora Rawcliffe, Skadden, Arps, Slate, Meagher & Flom LLP, on
Thursday, February 23, 2023
, , , , ,
More from: , , ,

Alessio Evangelista and Andrew Good are Partners and Bora Rawcliffe is Counsel at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on their Skadden memorandum.

On January 17, 2023, the U.S. Department of Justice (DOJ) announced revisions to the Criminal Division’s Corporate Enforcement Policy. The revisions follow Deputy Attorney General (DAG) Lisa Monaco’s September 2022 memorandum directing all DOJ components to adopt clear policies on certain issues, including a written policy to incentivize voluntary self-disclosure by companies. (See our November 21, 2022, October 6, 2022, and September 16, 2022, client alerts on the topic.)

The revisions largely focus on DOJ expectations and policies designed to further incentivize early and voluntary self-disclosures. For example, even a company involved in serious misconduct with aggravating circumstances (such as executive management involvement, recidivism or pervasiveness of misconduct within the company) may be able to avoid prosecution. This would occur if the company had an effective compliance program and system of internal accounting controls that enabled the identification of the misconduct and led to the company’s voluntary self-disclosure, and the company engaged in extraordinary cooperation and remediation.

Importantly, the revised policy emphasizes that companies are encouraged to self-disclose immediately upon identifying allegations of potential misconduct, even if an internal investigation has not been completed.

The revised policy also gives prosecutors more discretion in:

  • granting declinations;
  • dealing with recidivist companies; and
  • seeking reduced penalties for companies that meet certain criteria.

The policy further clarifies that it applies to all corporate matters prosecuted by the Criminal Division, not just Foreign Corrupt Practices Act (FCPA) cases.

Below, we summarize the key takeaways from the revised policy.

READ MORE »

Gender Diversity in the C-Suite

Posted by Gabrielle Lieberman, Russell Reynolds Associates, on
Wednesday, February 22, 2023
, , , , ,
More from: ,

Gabrielle Lieberman is a Leader of the Center for Leadership Insights at Russell Reynolds Associates. This post is based on a Russell Reynolds memorandum by Ms. Lieberman and Tom Handcock. 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.

Research shows that adding women to the C-suite changes how companies think. [1] Women executives impact how the C-suite approaches strategy and innovation. Simply put, women in executive leadership is good for business. And yet, women are still vastly underrepresented in the top leadership teams at America’s largest public companies.

In Russell Reynolds Associates’ analysis of the top 100 companies in the S&P500 (referred to as the S&P100 in this report), we found that men are 2.5x more likely than women to be executives in the top leadership teams. The roles in which women are well-represented are those that hold far less power and influence, highlighting the limitations of gender diversity and the perceived value of women in these organizations.

Closing the gender gap at the top remains a priority for companies as they continue to face increased scrutiny from stakeholders who demand more diversity in executive leadership. While there are currently no federal laws mandating gender diversity in executive leadership, many states have enacted legislation that specifically focuses on increasing gender diversity on corporate boards. Most notably, California became the first state in the US to mandate that public companies headquartered in the state must have women directors or face fines, up to $300,000.2 Although the law has been credited with improving the standing of women on corporate boards, gender diversity on corporate boards is not indicative of gender diversity in the C-suite.

READ MORE »

Meme Corporate Governance

Posted by Dhruv Aggarwal (Yale University), Albert H. Choi (University of Michigan), Alex Lee (Northwestern University), on
Wednesday, February 22, 2023
, , , , , ,
More from: , ,

Albert H. Choi is Paul G. Kauper Professor of Law at the University of Michigan, Dhruv Aggarwal is a J.D. Candidate at Yale Law School and Ph.D. Candidate at Yale School of Management, and Alex Lee is Professor of Law at Northwestern Pritzker School of Law. This post is based on their recent paper.

Starting in January 2021, the U.S. stock market was hit by a “meme stock” storm. Fueled by the rise of zero-commission trading (popularized by Robinhood) and online coordination through social media sites—such as Reddit—retail investors engaged in an active “buy” campaign to push up the stock prices of companies like GameStop and AMC to stratospheric levels. Taking advantage of the elevated stock prices, these firms unsurprisingly engaged in large amounts of capital raising through stock sales, alleviating their previously dire liquidity condition. The historic upsurge in retail investing has been met with both cynicism and celebration. Some scholars, concerned with the implication for the market’s efficiency, called for regulation of zero-commission trading and, more broadly, retail investing. Others, on the other hand, viewed the meme stock frenzy as signaling a new era of empowered retailed investors. Those with a more optimistic outlook on the meme stock frenzy have argued that coordinated retail investor movement can further lead to coordinated shareholder movement, empowering retail shareholders to bring about significant changes in corporate governance and to even make companies more prosocial. Did the influx of retail investors actually affect the governance structure at the meme stock companies? In a recent paper, we provide an empirical assessment of the factors that created the meme phenomenon and its consequences for corporate governance.

READ MORE »

Public Companies and Politics: How to Co-Exist

Posted by David Lopez, and Jonathan Povilonis, Cleary Gottlieb Steen & Hamilton LLP, on
Tuesday, February 21, 2023
, , , , ,
More from: , ,

David Lopez is a Partner and Jonathan Povilonis is an Associate at Cleary Gottlieb Steen & Hamilton LLP. This post is based on their Cleary memorandum.

A number of U.S. public companies have recently found themselves in a surprising place: trapped in visible and charged debates with politicians over internal corporate and investment policies. [1]

And when those policies strike different chords across the political spectrum, it increasingly brings boards of directors into new realms of controversy.  Can this trap be avoided or has corporate policy forever become entangled in a continuation of politics by other means?  Will public companies be forced to declare red or blue allegiances to match the polarized political environment of red and blue states? And will investors follow suit?

For companies that want to keep away from both the political debate and the allegiance question, the path is challenging but should start with fiduciary duty basics: develop policies under a clearly articulable rationale that enhances shareholder value.  Doing so removes the central argument cited by some observers against, for example, ESG-oriented policies: that they support a cause rather than a business objective and thereby undermine the classic corporate purpose.

READ MORE »

Retail Financial Innovation and Stock Market Dynamics: The Case of Target Date Funds

Posted by Jonathan A. Parker (MIT), Antoinette Schoar (MIT), and Yang Sun (Brandeis International Business School), on
Tuesday, February 21, 2023
, , , , ,
More from: , ,

Jonathan A. Parker is the Robert C. Merton (1970) Professor of Finance at MIT Sloan School of Management, Antoinette Schoar is the Stewart C. Myers-Horn Family Professor of Finance at MIT Sloan School of Management, and Yang Sun is Assistant Professor of Finance at Brandeis International Business School. This post is based on their article forthcoming in the Journal of Finance.

Over the past two decades, one of the most important financial innovations for the typical American retail investor has been the development and spread of Target Date Funds (TDFs, also called life-cycle funds). A TDF is a fund of funds that invests in a number of mutual funds so as to maintain given fractions of its assets in different asset classes, such as stocks and bonds. The specific asset allocation depends on the time until the investor’s expected retirement date, which is the fund’s target date. As time passes and its investors age, the TDF shifts the portfolio allocation automatically from higher to lower equity share, following the prescriptions of life-cycle models of optimal portfolio choice. The capital invested in TDFs and balanced funds (BFs) rose from under $8 billion in 2000 to almost $6 trillion in 2021, which is 22% of all funds invested in US mutual funds (about $27 trillion). This rapid growth was facilitated by the Pension Protection Act (PPA) of 2006, which qualifies both TDFs and BFs as default options in defined-contribution retirement saving plans. Similar strategies that automatically stabilize the share of an investor’s portfolio in different asset classes have recently been incorporated into a broader set of investment products, such as some automated advisory programs (e.g., model portfolios).

In our paper, “Retail Financial Innovation and Stock Market Dynamics: The Case of Target Date Funds”, we show that the rise of TDFs — originally designed to improve the diversification of individuals’ portfolios – has changed the flow of investor funds across funds and, now that they are big, started affecting the prices and returns of stocks. We focus on the fact that TDF strategies are macro-contrarian: after high stock market returns, TDFs’ strategies require that they sell stocks to return to their prescribed asset allocations within a short period of time. Historically, retirement and retail investors are either passive — letting their portfolio shares rise and fall with the returns on different asset classes — or they are active and tend to reallocate their assets into asset classes or funds with better past performance, a behavior known as positive feedback trading or momentum trading that can amplify price fluctuations. In contrast, by rebalancing to maintain age-appropriate asset allocations, TDFs trade against excess returns in each asset class, selling stocks and buying bonds when the stock market outperforms the bond market, and vice versa. The market-wide impact of this contrarian behavior was not the primary intent of the product design of TDFs which was simply to improve the individual-level portfolio choices of inattentive or unsophisticated retail investors.

READ MORE »

IPOs and SPACs: Recent Developments

Posted by Rongbing Huang (Kennesaw State University), Jay R. Ritter (University of Florida), and Donghang Zhang (University of South Carolina), on
Monday, February 20, 2023
, , , , ,
More from: , ,

Rongbing Huang is a Professor of Finance in the Coles College of Business at Kennesaw State University, Jay R. Ritter is the Cordell Eminent Scholar at the University of Florida’s Warrington College of Business, and Donghang Zhang is a Professor of Finance in the Darla Moore School of Business at the University of South Carolina. This post is based on an article forthcoming in the Annual Review of Financial Economics. Related research from the Program on Corporate Governance includes SPAC Laws and Myths (discussed on the Forum here) by John C. Coates.

The review article, IPOs and SPACs: Recent Developments, forthcoming in the Annual Review of Financial Economics, examines recent developments in the IPO market. The paper discusses three alternative mechanisms for going public, including traditional bookbuilt initial public offerings (IPOs), direct listings, and mergers with special purpose acquisition companies (SPACs), and provides a review of recent evidence on the processes, pricing, and consequences of IPOs.

A traditional bookbuilt IPO uses one or more underwriters to help the issuing firm conduct a roadshow (marketing campaigns aimed at institutional investors) and survey investor demand before pricing and allocating shares. These IPOs have faced criticism for leaving too much money on the table, defined as the difference between the market value of the shares sold and the issue proceeds. Underwriters have discretion in the allocation of shares and thus have incentives to set an offer price that allows them to allocate underpriced shares to favored clients. In auction IPOs and direct listings, investment banks do not have such discretion.

READ MORE »

Page 56 of 65
1 … 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65