Monthly Archives: February 2024

Trends in S&P 500 Board of Director Compensation

Posted by Linda Pappas, Christine Skizas, and Olivia Wakefield, Pay Governance LLC, on
Thursday, February 29, 2024
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Linda Pappas is Principal, Christine Skizas is a Managing Partner, and Olivia Wakefield is a Partner at Pay Governance LLC. This post is based on their Pay Governance memorandum. Related research from the Program on Corporate Governance includes The Perils and Questionable Promise of ESG-Based Compensation (discussed on the Forum here) by Lucian A. Bebchuk and Roberto Tallarita and Paying for Long-Term Performance (discussed on the Forum here) by Lucian A. Bebchuk and Jesse M. Fried.

Executive Summary

  • Over the last three years, median S&P 500 pay level increases for non-employee directors of the board (“directors”) have been minimal compared to prior years, with total cash compensation (TCC or cash retainers plus meeting fees) remaining flat, annual equity retainers up by +3%, and total direct compensation (TDC or sum of cash plus equity) up by +1%.
  • When observed over the longer term, S&P 500 director TDC has increased +2% on an annualized basis since 2015.
  • Structural director pay trends observed since 2015 include the decrease of meeting fee prevalence: used by 18% of the S&P 500 in 2015 compared to 9% as reported in proxy filings to date.
  • Premiums for both Non-Executive Board Chair roles and Lead Director roles have also increased in prevalence and quantum since 2015, potentially indicating an increased emphasis of these roles on corporate governance matters.
  • Of S&P 500 companies, 70% have established director pay limits with a median value of $750,000.

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BlackRock Updated 2024 U.S. Proxy Voting Guidelines

Posted by Daniel Chang and Rajeev Kumar, Georgeson LLC, on
Thursday, February 29, 2024
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Daniel Chang is Senior Institutional Analyst, and Rajeev Kumar is Senior Managing Director at Georgeson LLC. This post is based on their Georgeson memorandum.

In January 2024, BlackRock released its updated U.S. proxy voting guidelines, outlining its 2024 stewardship approach and expectations. A summary of these policy updates is detailed in our report below.

Introduction

BlackRock updated its proxy guideline introductory section to include an emphasis on understanding the drivers of risk and financial value creation in companies’ business models via its three-tiered approach for long-term investment stewardship:

  1. Engaging with companies to build their understanding of a company’s approach to corporate governance and business risks and opportunities.
  2. Voting at shareholder meetings on management and shareholder proposals on behalf of clients who have delegated voting authority to BlackRock. Voting is the formal mechanism through which BlackRock signals its support for, or concerns about, how companies serve BlackRock’s clients’ long-term financial interests.
  3. Contributing to emerging topical and stewardship issues that BlackRock believes may impact clients’ financial interests as long-term investors. BlackRock intends to share its perspectives on such issues with clients, policymakers, and others in the corporate governance ecosystem.

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8 Hot Topics in Activism

Posted by Tiffany Fobes Campion, Christopher R. Drewry, and Joshua M. Dubofsky, Latham & Watkins LLP, on
Thursday, February 29, 2024
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Tiffany F. Campion is a Senior Attorney, and Christopher R. Drewry and Joshua M. Dubofsky are Global Co-Chairs of the Shareholder Activism & Takeover Defense Practice at Latham & Watkins LLP. This post was prepared for the Forum by Ms. Campion, Mr. Drewry, and Mr. Dubofsky. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism (discussed on the Forum here) by Lucian A. 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 (discussed on the Forum here) by Leo E. Strine, Jr.

As stockholder activists wind up for a new proxy season, prepared companies stay ready to respond to the first indication of activist interest by identifying their activism defense teams, updating their “break glass” memos, and considering the following hot topics for 2024:

Next-Gen Advance Notice Bylaws

Over 60% of the S&P 500 have amended their bylaws to address the universal proxy rules, often adopting other advance notice enhancements simultaneously. However, while recent Delaware litigation has continued to uphold a board’s enforcement of advance notice bylaws, it also called into question the enforceability of certain disclosure requirements and the appropriate scope of entities making disclosures (e.g., Kellner v. AIM ImmunoTech Inc., et al., C.A. No. 2023-0879-LWW (Del. Ch. Dec. 28, 2023)).  There also has been an uptick in Delaware books and records demands regarding certain bylaw provisions. Companies must balance adopting provisions that provide beneficial information while being informed of the  potential backlash through litigation, activist PR response (e.g., Crown Castle) or shareholder proposals.

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Summary of Activism in 2023 and a Preview of Activism in 2024

Posted by Andrew Freedman, Olshan Frome Wolosky LLP, on
Wednesday, February 28, 2024
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Andrew Freedman is Co-Managing Partner and Chair of Shareholder Activism Practice at Olshan Frome Wolosky LLP. This post was prepared for the Forum by Mr. Freedman. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism (discussed on the Forum here) by Lucian A. 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 (discussed on the Forum here) by Leo E. Strine, Jr.

While shareholder activism in the U.S. was robust in 2023, we fell just short of a breakout year in terms of the number of activist engagements and other metrics. As expected, many activists, particularly would-be first-time activists, stood on the sidelines in order to get a sense of what a full year under the universal proxy card (“UPC”) rules would look like. Similarly, some activists were hesitant to jump into the fray until the Securities and Exchange Commission (“SEC”) announced final rules governing its proposed modernization of the Schedule 13D reporting system. Nevertheless, shareholder activists proved to be highly impactful in 2023 in terms of their ability to influence boards, obtaining a record number of board seats since 2018.

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2024 Proxy Season Trends: Zenith or Nadir?

Posted by Arthur B. Crozier, Gabrielle E. Wolf, and Jonathan L. Kovacs, Innisfree M&A Inc., on
Wednesday, February 28, 2024
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Arthur B. Crozier is Executive Chair, and Gabrielle E. Wolf and Jonathan L. Kovacs are Directors at Innisfree M&A Inc. This post was prepared for the Forum by Mr. Crozier, Ms. Wolf, and Mr. Kovacs.

The 2023 proxy season represented a notable departure from recent trends in prior proxy seasons, particularly with respect to proxy fights and voting on environmental and social (E&S) proposals. This article examines if those trends are likely to continue in 2024 and the possible impacts of recent judicial and regulatory developments on the ability of typical participants (issuers, activists, ESG and anti-ESG crusaders and other shareholder proponents) and unfamiliar or returning entrants (unions and trade associations) to gain access to the corporate governance machinery.

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PJT Partners 2024 Proxy Season Preview

Posted by Allie Rutherford, Adrienne Monley, and Eric Sumberg, PJT Camberview, on
Wednesday, February 28, 2024
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Allie Rutherford is a Partner, Adrienne Monley is Managing Director, and Eric Sumberg is Director at PJT Camberview. This post is based on their PJT Camberview memorandum.

The 2024 proxy season will take place during a time of elevated activism activity, heightened geopolitical risk and greater scrutiny of how companies are managing through challenging markets. The following five trends will shape how companies and investors navigate annual meetings this Spring.

1. Investors Will Focus on Board Effectiveness as New Risks Emerge for Companies

Companies are contending with geopolitical uncertainty, challenging labor dynamics and the emergence of new risks and opportunities such as artificial intelligence (AI) and other disruptive factors. In this complex environment, investors are focused on how well boards are positioned to provide effective oversight and support value-accretive decision-making. For 2024, investors have articulated engagement priorities and policy updates emphasizing the importance of strong board composition and succession planning practices and have signaled continued interest in understanding how boards identify and oversee material risks.

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Tornetta v. Musk is the Rule of Law at Work

Posted by Holger Spamann, Harvard Law School, on
Tuesday, February 27, 2024
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Holger Spamann is the Lawrence R. Grove Professor at Harvard Law School. This post is based on his recent op-ed. Related research from the Program on Corporate Governance includes Executive Compensation as an Agency Problem and Pay without Performance: The Unfulfilled Promise of Executive Compensation both by Lucian A. Bebchuk and Jesse M. Fried; The Growth of Executive Pay by Lucian A. Bebchuk and Yaniv Grinstein; and The CEO Pay Slice (discussed on the Forum here) by Lucian A. Bebchuk, Martijn Cremers, and Urs Peyer.

In an op-ed in the Wall Street Journal on February 22, Gov. Jeb Bush and Joe Lonsdale have it exactly backwards when they complain that Tornetta v. Musk “imperil[s] the rule of law.” Messrs. Bush and Lonsdale misrepresent the case as “arbitrary enforcement” in violation of “equality before the law.” The aspects of Tornetta that Messrs. Bush and Lonsdale complain about, however, are just business as usual in U.S. corporate law. Tornetta does exactly what Messrs. Bush and Lonsdale want courts to do: it applies “equal justice” even to the most powerful, most vocal CEO alive.

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2024 Proxy Season Preview: Looking for a Silver Lining

Posted by Merel Spierings, The Conference Board, on
Tuesday, February 27, 2024
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Merel Spierings is Senior Researcher for the ESG Center at The Conference Board. This post is based on an upcoming Conference Board report, which was developed using data from ESG analytics firm ESGAUGE and produced in collaboration with Russell Reynolds Associates and Rutgers Center for Corporate Law and Governance.

Companies and major institutional investors are interested in finding common ground with each other as they deal with a random assortment of shareholder proposals this year amid ardent pro- and anti-ESG pressures. This article touches on the key developments we should be watching heading into the new proxy season.

With shareholder proposals becoming more prescriptive and costly to implement, investors are willing listen to companies’ explanations of the cost-benefit analysis of proposals.

Last year’s record number of shareholder proposals led to “proposal fatigue” among major institutional investors and corporations alike – and proposals’ deteriorating quality led to declining support. Rather than being discouraged after two years of declining average support, however, shareholders submitting proposals are responding by adjusting their proposals (e.g., trying somewhat different angles to an issue they raised before) or adopting new issues (e.g., by piggybacking on a more successful proposal submitted by someone else in a previous year). As a result, along with topics such as Artificial Intelligence, the 2024 proxy season is seeing a proliferation of new types of shareholder proposals, including on the clean energy (“green versus brown”) financing ratio at financial institutions; treating shareholder nominees for the board on par with company nominees; imposing new resignation obligations on directors failing to obtain a majority vote for two years in a row.

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Rebellion extinction: Does Exxon mark the end of shareholder engagement?

Posted by Georgia Stewart, Tumelo, on
Tuesday, February 27, 2024
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Georgia Stewart is CEO of Tumelo. This post was prepared for the Forum by Ms. Stewart. Related research from the Program on Corporate Governance includes Social Responsibility Resolutions (discussed on the Forum here) by Scott Hirst and Stockholder Politics by Roberto Tallarita.

In an era where the corporate world is increasingly held accountable for its social and environmental footprint, a striking confrontation is unfolding, one that could redefine the very nature of stewardship.

This conflict, epitomised by the recent legal battle between Exxon Mobil and its shareholders, is an acute example of the evolving complexities for corporate-governance professionals.

Gone are the days when the Friedman doctrine reigned supreme, where the sole responsibility of a business was to increase its profits; when alignment among company directors, asset managers and asset owners was straightforward and clear. When there was a singular focus throughout the whole investment chain on share price. As the corporate landscape has grown and globalised, this once-clear path is now fraught with the thorny issues that arise when any stakeholder considers performance across a diversified portfolio, and over the longer-term.  READ MORE »

Oregon State Treasury Nomination Neutrality

Posted by Philip Larrieu, Oregon State Treasury, on
Monday, February 26, 2024
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Philip Larrieu is a Stewardship Investment Officer at the Oregon State Treasury. This post was prepared for the Forum by Mr. Larrieu. Related research from the Program on Corporate Governance includes Universal Proxies (discussed on the Forum here) by Scott Hirst and The Myth of the Shareholder Franchise (discussed on the Forum here) by Lucian A. Bebchuk.

The essence of corporate governance is rooted in addressing the agency problem, which encapsulates the inherent tension between the Board of Directors’ fiduciary duty to represent shareholder interests on one hand and the possible conflict this presents with personal interests. This fundamental conflict engenders significant apprehension among shareholders, stemming from the potential for the board or management to consider self-preservation over shareholder value and interests. To mitigate these concerns, shareholders have historically advocated for mechanisms to maintain their appropriate influence within the corporate governance framework. A central goal in many of these efforts has been protecting and enhancing shareholders’ ability to nominate director candidates.

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