Yearly Archives: 2024

Shielding the C-Suite

Posted by Miriam Wrobel and Tegan Louw (FTI Consulting), on
Thursday, July 18, 2024
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Miriam Wrobel is Senior Managing Director and Global Leader, and Tegan Louw is a Senior Consultant at FTI Consulting. This post is based on their FTI memorandum.

Litigation, regulation, and activism around ESG topics are increasing. There is a growing expectation that organizations will be transparent about their ESG programs and risks while working diligently to improve their organizations’ performance.

As the global business environment moves toward increased transparency and scrutiny of leaders’ oversight, executives are being held accountable for their organization’s ESG strategy and implementation. So, it is unsurprising that ESG factors and governance of key ESG topics are considered by underwriters when underwriting Directors and Officers liability insurance (D&O).[1] In fact, companies that ignore key ESG risks or lack oversight are at risk of not being able to secure favorable terms for D&O insurance in the future or may find themselves uninsured when an incident occurs.[2]

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Partisan Politics and Annual Shareholder Meeting Formats

Posted by David Yermack (NYU), and Lily Yuanzhi Li (Villanova University), on
Thursday, July 18, 2024
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David Yermack is the Albert Fingerhut Professor of Finance and Business Transformation at New York University Stern School of Business; and Lily Yuanzhi Li is an Assistant Professor of Finance & Real Estate at Villanova University. This post is based on their recent paper.

Annual shareholder meetings are an important institution in corporate governance, providing a forum for shareholders to present proposals and challenge management. Traditionally most shareholder meetings have taken place in person, except at a few tech firms such as Netflix, Inc.  The Covid-19 pandemic changed this practice, as public health regulations discouraged or banned large gatherings in mid-March 2020. Nearly all shareholder meetings around this time were suddenly held virtually.  As the pandemic ends, with other social activities such as school reverting to in-person, firms also face decisions of whether to keep shareholder meetings online or move back to the traditional in-person format. In a recent paper, we study firms’ choices of the meeting format for their annual shareholder meetings in the pre-Covid, mid-Covid, and post-Covid periods, focusing on the role of partisan politics in these decisions.

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After Chevron: What the Supreme Court’s Loper Bright Decision Changed, And What It Didn’t

Posted by Nowell D. Bamberger, Carmine D. Boccuzzi, Jr., William Baldwin, Cleary Gottlieb Steen & Hamilton LLP, on
Thursday, July 18, 2024
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Nowell D. Bamberger, Carmine D. Boccuzzi are Partners, and William E. Baldwin is an Associate at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb memorandum by Mr. Bamberger, Mr. Boccuzzi, Mr. Baldwin, and Angela Dunning. 

The Supreme Court’s decision in Loper Bright Enterprises v. Raimondo[1] has significantly changed the law applicable to judicial review of administrative action and rulemaking. Overturning the longstanding doctrine known as “Chevron deference,” Loper Bright expands the judiciary’s power to review and reject interpretations of statutes adopted by federal administrative agencies. The significance of the decision, however, should not be overstated.

Chevron deference applied only to agency interpretations of ambiguous law—specifically, to agency interpretations of congressional statutes that are “‘silent or ambiguous with respect to the specific issue’ at hand.”[2] In overturning Chevron, the Supreme Court has authorized federal courts to draw their own conclusions about the correct legal interpretation of otherwise ambiguous federal statutes. But Loper Bright is not a wholesale rejection of agency expertise or authority. There are many arenas where federal courts are still required to give significant deference to agency action, including discretionary agency action or agency fact-finding. Thus, although Loper Bright is one of a series of decisions in which the Roberts Court has pared back the flexibility and power of administrative agencies, it is not a silver bullet for challenging federal agency rulemaking and authority—the decision’s application remains limited to specific situations.

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Q1 2024 Gender Diversity Index

Posted by Amit Batish, Equilar, Inc., on
Wednesday, July 17, 2024
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Amit Batish is Director of Content at Equilar, Inc. This post is based on his Equilar memorandum.

The pace of women joining Russell 3000 boards has slowed substantially, according to the latest Equilar Gender Diversity Index (GDI). The Q1 2024 GDI reveals that women now represent 29.7% of all Russell 3000 board seats, up modestly from 29.4% in Q4 2023. The slight uptick was not enough to move the GDI needle, which stayed put at the same point as the previous quarter at 0.59, where 1.0 represents gender parity.

The most surprising statistic from the Q1 analysis is that just 30.6% of new directors during the quarter were women, marking the lowest percentage since Q4 2017 when 28.6% of new board seats were appointed to women. It’s clear companies are not prioritizing gender diversity on boards at the same level as they once did, partially due to the focus on other forms of diversity, such as race, ethnicity and sexual orientation.

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The origins of modern corporate governance: New findings

Posted by Stephen M. Davis (Harvard Law School) and Daniel Malan (Trinity Business School), on
Wednesday, July 17, 2024
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Stephen M. Davis is a Senior Fellow at the Harvard Law School Program on Corporate Governance and a Co-organizer of the Capital+Constitution project; and Daniel Malan is an Assistant Professor of Business Ethics and the Director of the Trinity Corporate Governance Lab at Trinity Business School.

The history of finance is a field fertile with research, papers, books, and conferences. The reason is clear: studies yield insights into past mistakes, cultural implications over time, and policy development going forward. Yet the history of corporate governance is a field in its infancy. A first conference on the topic convened at the Yale School of Management in November 2009, marking the 400th anniversary of the first-known instance of shareholder rebellion at a publicly-traded enterprise, the Dutch East India Company. Two books resulted: Origins of Shareholder Advocacy, edited by Jonathan Koppell, and Shareholder Rights at 400: Commemorating Isaac Le Maire and the First Recorded Expression of Investor Advocacy. But scholarship since then has been sporadic. Even consensus on the birth of the modern corporate governance movement has been elusive—until a recent archival find. 

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SCOTUS to Clarify Securities Fraud Pleading Requirements for Falsity and Scienter

Posted by M. Scott Barnard, Aileen M. McGrath and Neal Ross Marder, Akin Gump Strauss Hauer & Feld LLP, on
Wednesday, July 17, 2024
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M. Scott Barnard, Aileen M. McGrath and Neal Ross Marder are Partners at Akin Gump Strauss Hauer & Feld LLP. This post is based on a Akin Gump memorandum by Mr. Barnard, Ms. McGrath, Mr. Marder, Josh A. Rubin and Sina S. Safvati.

On June 17, 2024, the U.S. Supreme Court granted certiorari in Nvidia Corp. v. E. Ohman J:or Fonder AB [No. 23-970]. The Supreme Court’s decision is expected to address, for the first time in over a decade, the exacting pleading requirements civil plaintiffs must overcome in securities fraud class actions brought under the Securities Exchange Act of 1934 (the “Exchange Act”). The Supreme Court agreed to answer two significant questions, both of which have very real consequences for businesses facing securities fraud litigation: (1) whether plaintiffs seeking to allege a strong inference of scienter under the Private Securities Litigation Reform Act (PSLRA)—a rigorous and formidable burden—based on allegations about internal company documents must plead the contents of those documents with particularity; and (2) whether plaintiffs can satisfy the PSLRA’s particularized falsity requirement by relying on an expert opinion as a substitute for specific allegations of fact in a complaint.

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2024 Say on Pay + Proxy Vote Results

Posted by Todd Sirras, Austin Vanbastelaer, and Justin Beck, Semler Brossy LLC, on
Tuesday, July 16, 2024
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Todd Sirras is Managing Director, Austin Vanbastelaer is Principal, and Justin Beck is a Senior Consultant at Semler Brossy LLC. This post is based on a Semler Brossy memorandum by Mr. Sirras, Mr. Vanbastelaer, Mr. Beck, Kyle McCarthy, Nathan Grantz, and Anish Tamhaney.

SAY ON PAY RESULTS

BREAKDOWN OF SAY ON PAY VOTE RESULTS

14 Russell 3000 companies (0.9%) have failed Say on Pay thus far in 2024, 3 of which are in the S&P 500 (0.8%). Five companies have failed since our last report (bolded on page 3).

SAY ON PAY OBSERVATIONS

  • 14 companies (0.9%) have failed Say on Pay thus far in 2024, compared to 26 companies at this time in 2023 (1.7%)
  • The percentage of Russell 3000 companies receiving greater than 90% support (76%) is higher than the percentage at this time last year (74%)
  • The current Russell 3000 average vote result of 91.2% is 120 basis points higher than the index’s 2023 year-end average, and the current S&P 500 average vote result of 89.8% is 110 basis points higher than the index’s 2023 year-end average
  • The Russell 3000 average vote result of 91 .2% thus far in 2024 is 50 basis points higher than the average vote result at this time last year (90.7%}, and the highest in any single year since 2017

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100 Years of Rising Corporate Concentration

Posted by Spencer Kwon (Brown University), Kaspar Zimmermann (Frankfurt School of Finance & Management), and Yueran Ma (University of Chicago Booth School of Business), on
Tuesday, July 16, 2024
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Spencer Kwon is an Assistant Professor of Economics at Brown University, Kaspar Zimmermann is an Assistant Professor of Finance at the Frankfurt School of Finance & Management, and Yueran Ma is a Professor of Finance at The University of Chicago Booth School of Business. This post is based on their recent article forthcoming in the American Economic Review.

The dominance of large firms in the US economy has drawn growing attention in recent years. From Walmart to Apple, many salient examples point to the prominence of large companies in day to day life. Standard datasets corroborate this impression. For instance, comprehensive economic census data available since the 1980s show that the largest firms account for an increasing share of output in many industries.

A common presumption is that rising concentration of economic activities in the largest American companies is a new and unusual phenomenon. Its occurrence is often attributed to recent events, from information technology and globalization to population aging and shifts in antitrust enforcement. The focus on the recent decades prevails as standard datasets provide much more information about this period.

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Fifth Circuit Vacates SEC’s Rescission of Notice-and-Awareness Requirements for Proxy Advisors

Posted by June M. Hu and Katherine C. McCreery, Sullivan & Cromwell LLP, on
Tuesday, July 16, 2024
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June M. Hu is Special Counsel and Katherine C. McCreery is a Summer Associate at Sullivan & Cromwell LLP. This post is based on a Sullivan & Cromwell memorandum by Ms. Hu, Ms. McCreery, Catherine M. Clarkin, Robert W. Downes, and Marc Treviño.

Finds SEC Acted Arbitrarily and Capriciously in Reversing Requirements for Proxy Advisory Firms to Notify Companies of Proxy Voting Advice and Make Investors Aware of Companies’ Responses

In 2020, the SEC required proxy advisory firms to (1) make proxy voting advice about a company available to the company in advance of or concurrently with disseminating it to their clients and (2) have a mechanism for making clients aware of the company’s response statement before they vote. In 2022, the SEC adopted amendments to remove these notice-and-awareness requirements.[1] On June 26, 2024, a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit ruled in National Association of Manufacturers et al. v. U.S. Securities and Exchange Commission that the SEC acted arbitrarily and capriciously in removing these requirements, and therefore violated the Administrative Procedure Act (“APA”).

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What Settlement Data Says About the Evolution of Activism

Posted by Pat Tucker, Garrett Muzikowski, and Sean Lange, FTI Consulting, on
Monday, July 15, 2024
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Pat Tucker is a Senior Managing Director, Garrett Muzikowski is a Senior Director, and Sean Lange is a Director for Financial Communications at FTI Consulting. This post is based on their FTI Consulting memorandum.

Since the introduction of Universal Proxy in August 2022, one of the most notable changes in shareholder activism has been the significant increase in settlements between Boards and activists. With heightened risks for individual directors in proxy fights, Boards have been more inclined to settle, and settle quickly. Counter intuitively, this has also corresponded with a time where management teams are winning decisively in proxy contests – seven of eight proxy contests held in the U.S. so far in 2024 resulted in full victories for management.

As we close out the 2024 proxy season, those in the activism defense world are starting to ask: are Boards settling too quickly?

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