Yearly Archives: 2024

DOJ Strengthens Incentives to Report Corporate Misconduct

Posted by Carolyn Small, Paige Zielinski, and Brandon Fox, Jenner & Block LLP, on
Tuesday, May 28, 2024
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Carolyn Small is Special Counsel, Paige Zielinski is an Associate, and Brandon Fox is a Managing Partner at Jenner & Block LLP. This post is based on a Jenner & Block memorandum by Ms. Small, Ms. Zielinski, Mr. Fox, Laurel Loomis Rimon, David Bitkower, and Anthony Barkow.

Just over a month after Deputy Attorney General Lisa Monaco announced the upcoming launch of the Department of Justice’s whistleblower rewards program, the DOJ Criminal Division unveiled its newest program to incentivize disclosure of alleged corporate wrongdoing: the Pilot Program on Voluntary Self-Disclosures for Individuals. The launch of this program is the latest in a string of new programs that are designed to incentivize individuals to report corporate wrongdoing and cooperate with the government when it investigates and prosecutes companies for certain criminal violations. Below, we provide an overview of the new program and criteria for participation, and discuss the government’s growing emphasis on encouraging self-disclosures and implementing whistleblower programs to identify potential criminal violations by public and private companies.

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Compensation Consultants and CEO Pay Peer Groups

Posted by Woon Sau Leung (University of Southampton), on
Monday, May 27, 2024
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Woon Sau Leung is Professor of Finance at the University of Southampton Business School. This post is based on a working paper by Professor Iftekhar Hasan, Professor Leung, and Dr. Stefano Manfredonia.

Academics have long been interested in understanding whether pay packages for CEOs are efficiently designed. Research under the “efficient contracting” view believes high pay reflects a premium for managerial talents, human capital, and/or other non-monetary benefits. On the other hand, another strand of the literature argues that the pay-setting process is inefficient, as CEOs can extract rent by exercising their power over the board of directors and driving pay up.

Increasing attention has been paid recently to compensation consultants and their role in the ever-rising CEO pay. Most large corporations today employ compensation consultants who offer a range of services to their clients, including compensation structuring, incentives, actuarial analysis, and human resources support. Many believe that these consultants can contribute to making CEO pay settings more efficient due to their industry expertise and informational advantages. However, some acknowledge that consultants may have an incentive to secure new or repeat business and cross-sell other services. Such conflicted interests may lead them to favor incumbent management and be overly generous in their pay recommendations.

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Sustainability Board Preparedness in Large Family Businesses

Posted by Frederik Otto and Michael Reed, The Sustainability Board, on
Sunday, May 26, 2024
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Frederik Otto is Executive Director and Michael Reed is Director and Senior Advisor of the Institute for Sustainable Family Business at The Sustainability Board (TSB). This post is based on their TSB memorandum.

In 2019, when we began our reporting cycle, a mere 54 of the 100 largest global companies had clearly defined sustainability oversight, with 16% of directors being ESG-engaged. After seeing only modest gains in 2020, we wanted to understand how different ownership structures might affect sustainability preparedness of boards.

Our special report on publicly traded family business in 2020 revealed that sustainability oversight was lagging behind in comparison to our default sample of the Top 100 Forbes 2000 which contains mainly non-family businesses. However, directors on family boards were twice as likely to be engaged on sustainability than those in our default sample.

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Alternative Asset Manager Governance & Succession

Posted by Adam Fleisher, Michael J. Albano, and Alan M. Levine, Cleary Gottlieb Steen & Hamilton LLP, on
Saturday, May 25, 2024
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Adam Fleisher, Michael J. Albano, and Alan M. Levine are Partners at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb memorandum by Mr. Fleisher, Mr. Albano, Mr. Levine, and Anirudh Sivaram.

As founders of hedge funds and private equity funds approach retirement, it is critical for them to ensure institutional stability through well-considered succession plans and governance arrangements. Failure to properly prepare for the transition to the next generation can result in severe business instability or even a firm’s demise.  This is a brief overview of key issues to consider in thinking about these topics.

1. Economics. Very often a founder holds a substantial portion of firm economics. When the founder transitions to a more inactive role or full retirement, the transition can result in correspondingly less equity being available to compensate the remaining active partners and employees or to achieve other corporate development goals (e.g., stock-based acquisitions).

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Board Gender Diversity and Investment Efficiency: Global Evidence from 83 Country-Level Interventions

Posted by Dave (Young Il) Baik (Nanyang Technological University), Clara Xiaoling Chen, and David Godsell (University of Illinois Urbana-Champaign), on
Friday, May 24, 2024
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Dave (Young Il) Baik is an Assistant Professor at Nanyang Technological University, Clara Chen is the Lillian and Morrie Moss Distinguished Professor in Accountancy at the University of Illinois in Urbana-Champaign, and David Godsell is a PricewaterhouseCoopers Faculty Fellow and Assistant Professor at the University of Illinois in Urbana-Champaign. This post is based on their recent article published in The Accounting Review.

Regulators worldwide are responding to increasing demand for gender diversity on corporate boards by experimenting with policy interventions intended to increase female representation among board directors. In our recent article titled, “Board gender diversity and investment efficiency: Global evidence from 83 country-level interventions”, we catalog, for the first time, 83 country-level board gender diversity (BGD) interventions in 59 countries between 1999 and 2021. The average intervention in our catalog significantly increases female representation on corporate boards. The average post-intervention increase in BGD, measured as the quotient of female board directors divided by the total number of board directors, is 7.3 percentage points.

We employ our novel catalog of 83 board gender diversity interventions to examine the effect of BGD on a first-order firm outcome: investment efficiency. We examine the efficiency of investment because investment is the most important driver of firm value and impacts the broader economy and society, determining both firm and country growth over time.

The effect of BGD on investment efficiency is an open question.

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Weekly Roundup: May 17-23, 2024

Posted by the Harvard Law School Forum on Corporate Governance, on
Friday, May 24, 2024

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This roundup contains a collection of the posts published on the Forum during the week of May 17-23, 2024

Statement by Chair Gensler on Amendments to Regulation S-P

Posted by Gary Gensler, U.S. Securities and Exchange Commission, on Friday, May 17, 2024
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The Limits on Sharing Confidential Information with Activists

Posted by Gail Weinstein, Philip Richter, and Warren de Weid, Fried, Frank, Harris, Shriver & Jacobson LLP, on Saturday, May 18, 2024
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Delaware Courts Are Asking Just When a Stockholder Vote Is ‘Fully Informed’

Posted by Jenness E. Parker and Amanda L. Day, Skadden, Arps, Slate, Meagher & Flom LLP, on Sunday, May 19, 2024
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2024 Caremark Developments: Has the Court’s Approach Shifted?

Posted by Gail Weinstein, Philip Richter, and Steven Epstein, Fried, Frank, Harris, Shriver & Jacobson LLP, on Monday, May 20, 2024
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The governance of director compensation

Posted by Lily Fang (INSEAD) and Sterling Huang (SMU), on Monday, May 20, 2024
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SEC No Action Statistics to May 1, 2024

Posted by Sanford Lewis, Shareholder Rights Group, on Monday, May 20, 2024
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Controller’s Ability to Appoint and Remove Directors Insufficient to Establish Demand Futility

Posted by Robin E. Wechkin, Sidley Austin LLP, on Tuesday, May 21, 2024
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Proposed DGCL § 122(18), Long-term Investors, and the Hollowing Out of DGCL § 141(a)

Posted by Marcel Kahan and Edward Rock (New York University School of Law), on Tuesday, May 21, 2024
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The Perils of Governance by Stockholder Agreements

Posted by Lucian A. Bebchuk (Harvard Law School), on Tuesday, May 21, 2024
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Chancery Subjects Reincorporation to Entire Fairness, Delaware Supreme Court Says Not So Fast

Posted by Mark Thierfelder, Eric Siegel, and Richard Horvath, Dechert LLP, on Wednesday, May 22, 2024
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The SEC as an Entrepreneurial Enforcer

Posted by James Park (UCLA), on Wednesday, May 22, 2024
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Preparing Now for the SEC’s New Climate Rules

Posted by Raquel Fox, Marc S. Gerber, and Caroline S. Kim, Skadden, Arps, Slate, Meagher & Flom LLP, on Wednesday, May 22, 2024
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Q1 2024 Takeaways on What Directors and Officers Need to Know

Posted by Elizabeth Bieber and Pamela Marcogliese, Freshfields Bruckhaus Deringer LLP, on Thursday, May 23, 2024
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Custom Proxy Voting Advice

Posted by Edwin Hu (NYU), Nadya Malenko (Boston College), Jonathon Zytnick (Georgetown University), on Thursday, May 23, 2024
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Say-on-Climate Votes: Asset Managers Send Mixed Signals

Posted by Lindsey Stewart, Morningstar, Inc., on Thursday, May 23, 2024
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Say-on-Climate Votes: Asset Managers Send Mixed Signals

Posted by Lindsey Stewart, Morningstar, Inc., on
Thursday, May 23, 2024
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Lindsey Stewart is Director of Investment Stewardship Research at Morningstar, Inc. This post is based on his Morningstar memorandum.

Key Takeaways

Three Years of Say-on-Climate: Most Action in Europe

  • Say-on-climate resolutions are a relatively new genre of proposals, enabling shareholders to express a view on a company’s climate strategy.
  • This paper reviews the votes on 87 say-on-climate resolutions in the past three years. European companies account for 83% of these proposals.
  • Shareholder support for say-on-climate resolutions is relatively high, at an average of 89% over three years. The average is bolstered by support from the largest shareholders in the market on nearly all proposals

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Custom Proxy Voting Advice

Posted by Edwin Hu (NYU), Nadya Malenko (Boston College), Jonathon Zytnick (Georgetown University), on
Thursday, May 23, 2024
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Edwin Hu is a Research Fellow at the NYU School of Law’s Institute for Corporate Governance & Finance, Nadya Malenko is a Professor of Finance at Boston College, and Jonathon Zytnick is an Associate Professor of Law at Georgetown University Law Center. This post is based on their recent paper.

Institutional investors play a crucial role in corporate governance, yet the process by which they arrive at voting decisions remains opaque. Our  recent research opens the “black box” by highlighting the significant role of customized proxy voting advice in shaping shareholder voting behavior.

Traditionally, academic research and policy debates have centered around benchmark recommendations provided by proxy advisors like ISS and Glass Lewis. The dominance of these two firms has raised concerns about their influence over corporate governance. However, our study, using novel data from Glass Lewis, reveals that the majority of funds (around 80%) actually receive customized advice tailored to their specific needs.

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Q1 2024 Takeaways on What Directors and Officers Need to Know

Posted by Elizabeth Bieber and Pamela Marcogliese, Freshfields Bruckhaus Deringer LLP, on
Thursday, May 23, 2024
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Elizabeth Bieber is a Partner and Pamela Marcogliese is Head of US Transactions at Freshfields Bruckhaus Deringer LLP. This post is based on a Freshfields memorandum by Ms. Bieber, Ms. Marcogliese, and the Freshfields Corporate Advisory group.

SEC Adopts, then Stays, Final Rules on Climate-Related Disclosures

On March 6, 2024, the SEC adopted its long anticipated final rules on climate-related disclosures, which it had originally proposed in March 2022. The final rules amend Regulations S-K and Regulation S-X to set forth the climate-related information that U.S. domestic filers and FPIs are required to disclose in their annual reports and registration statements filed with the SEC.

Companies must include extensive disclosure of material climate-related matters including as they relate to risk and risk management, strategy, management- and board-level governance, targets and goals, GHG emissions (Scope 3 not explicitly required) and specified financial statement line-item impacts. Notable changes include:

  • Many of the disclosure requirements have been qualified by materiality.
  • Quantification of financial statement line-item impacts are subject to 1% and de minimis thresholds.
  • Attestation reports are only required for large accelerated filers (limited assurance, and then reasonable assurance) and accelerated filers (limited assurance only).
  • Some requirements are not applicable to EGCs or SRCs.

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Preparing Now for the SEC’s New Climate Rules

Posted by Raquel Fox, Marc S. Gerber, and Caroline S. Kim, Skadden, Arps, Slate, Meagher & Flom LLP, on
Wednesday, May 22, 2024
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Raquel Fox and Marc S. Gerber are Partners and Caroline S. Kim is Counsel at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on a Skadden memorandum by Ms. Fox, Mr. Gerber, Ms. Kim, and Jeongu Gim.

Key Points

  • Even though the Securities and Exchange Commission’s (SEC’s) climate-related disclosure rules are on hold while court challenges are heard, companies need to prepare for the possibility that some or all parts of the rules will come into effect.
  • A growing number of states and other countries are requiring similar disclosures, which can include quantitative and qualitative measures of the climate impact of operations, projected climate-related risks and progress toward sustainability goals.
  • Directors need to consider how oversight responsibility for compliance should be allocated within the board and its committees, and what metrics the company should use to provide the highly detailed disclosures the rules mandate.
  • Beyond compliance with government requirements, the growing number of climate disclosure regimes is likely to shape the expectations of investors and other stakeholders.

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