Yearly Archives: 2025

Too Much, Too Soon, for Too Long: The Hidden Cost of Competitive CEO Pay

Posted by Gilles Chemla (Imperial College), Alejandro Rivera (UT-Dallas), and Liyan Shi (Carnegie Mellon University), on
Wednesday, December 17, 2025
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Gilles Chemla is a Professor of Finance at Imperial College, Alejandro Rivera is an Associate Professor of Finance at UT-Dallas, and Liyan Shi is the Shubham Singhal and Jenny Cordina Assistant Professor of Economics at Carnegie Mellon University. This post is based on their recent article, forthcoming in the Journal of Finance.

Executive compensation remains one of the most contentious topics in finance. The debate is usually polarized between two views. On one side, the “shareholder view” argues that high pay is an efficient market outcome—the necessary price for scarce talent in a competitive world. On the other side, the “managerial power view” argues that high pay is the result of rent extraction by entrenched CEOs taking advantage of weak boards.

In our recent paper, Too Much, Too Soon, for Too Long: The Dynamics of Competitive Executive Compensation (Journal of Finance, 2025), we propose a novel perspective. We show that even when boards are perfectly independent and markets are perfectly competitive, the equilibrium CEO compensation package is inefficient.

Specifically, we find that in a competitive market, executives are paid too much, receive their pay too soon, and keep their jobs for too long relative to what is socially optimal.

The Mechanism: Externalities through Outside Options

Why does competition lead to inefficiency? The answer lies in pecuniary externalities, the ripple effects that one firm’s contract choices have on the wider labor market via the outside options available to corporate executives. READ MORE »

The ‘E‘ of ESG: Greenwashing Under the Spotlight – Recent Trends in the US

Posted by Sam Houshower, Jennifer King, and Andres Calzada, Freshfields Bruckhaus Deringer LLP, on
Wednesday, December 17, 2025
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Sam Houshower is Counsel, Jennifer King is an Associate, and Andres Calzada is a Law Clerk at Freshfields Bruckhaus Deringer LLP. This post is based on their Freshfields memorandum.

Similar to the recent developments and intensifying regulatory approaches we outlined in our blog posts covering greenwashing trends in the EU and the UK, green marketing claims in the US are now subject to growing scrutiny by a range of actors, including regulators, state attorneys general, and private plaintiffs and their counsel, albeit in an increasingly patchwork manner.

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Retaining the C-Suite After CEO Turnover

Posted by Marco Pizzitola, Desmond Pang, and Joe Sorrentino, FW Cook, on
Tuesday, December 16, 2025
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Marco Pizzitola and Desmond Pang are Consultants, and Joe Sorrentino is a Managing Director at FW Cook. This post is based on their FW Cook report.

In 2021, FW Cook sought to better understand how companies can effectively retain their C-suite leaders after CEO turnover. Ensuring stability across the leadership team is an important factor in executing proper CEO succession, particularly as it applies to high-value individuals that may have been considered as CEO candidates themselves. Our prior study found that special one-time equity grants made to the leadership team have a strong retention effect in the short term, but that the effect wanes quickly

This year, FW Cook refreshed the study with new data to test for changes in the prevalence or effectiveness of special equity grants as a retention strategy. While the original study focused on CEO turnover events between 2011 and 2015 (and an associated retention period through 2020), this year’s analysis focused on the following five-year window. Further, our updated analysis builds upon the original research by also exploring the retentive value of all outstanding equity awards (i.e., annual and special grants) held by C-suite leaders.

The findings in our updated study are largely aligned with those of the original analysis. Particularly, special equity grants made to non-CEO executives in the wake of CEO turnover continue to show a strong, but limited, retentive effect – typically lasting approximately two to three years. Prevalence and design of such awards remain consistent, although the dollar value of such awards has increased materially.

A new finding identified in this year’s study is that non-CEO executive grants are twice as common when the CEO is an external hire. Lastly, a correlation between total outstanding equity and length of retention was identified, regardless of whether special retention grants were made.

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Watch Out for the Watchdogs

Posted by Jack P. DiCanio, and Mark R.S. Foster, Skadden, Arps, Slate, Meagher & Flom LLP, on
Tuesday, December 16, 2025
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Jack P. DiCanio and Mark R.S. Foster are Partners at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on their Skadden memorandum.

Key Points

  • Watchdog groups that have no direct stake in companies are increasingly raising concerns directly to boards about critical issues like safety, ethics or compliance.
  • Ignoring such communications can create risks for the company and its directors.
  • Boards should respond with the same care as they would to whistleblower complaints or shareholder demands, which means understanding the issues and assessing their seriousness.
  • Documenting the board’s response and reasoning is vital so the board can show that it acted in good faith and with due care if the company or board’s response is challenged later.

Directors of public companies are no strangers to scrutiny. Shareholders, whistleblowers, analysts, activists, unions, reporters, influencers, consumers, investigators, legislators and regulators all routinely question board decisions and corporate conduct. Add “watchdogs” to that list — organizations or individuals who, without a direct stake in the company, demand board action on issues they believe are critical.

When a watchdog group raises concerns or makes demands, directors must respond thoughtfully and diligently. As a board confronts such concerns, the directors’ mindset is important. Directors should be open to consider inputs from all sources that lead to a more thoughtful review and better outcomes. Proper handling not only fulfills their oversight responsibilities but also benefits the company and creates a defensible record of informed, good faith action. An appropriate response to watchdogs will often mirror a board’s approach to whistleblower complaints or shareholder demands. In every case, directors should ensure they are acting with diligence and care, reflecting a thoughtful process and sound business judgment.

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2026 Annual Report and Proxy Season: Proxy Voting Matters

Posted by Ali Perry, Liz Walsh, and Jennifer Zepralka, Mayer Brown, on
Monday, December 15, 2025
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Ali Perry and Liz Walsh are Counsel, and Jennifer Zepralka is a Partner at Mayer Brown. This post is based on a Mayer Brown memorandum by Ms. Perry, Ms. Walsh, Ms. Zepralka, Anna Pinedo, and Carlos Juarez.

During the 2025 proxy season, the volume of shareholder proposals fell in the United States and rose modestly in Europe and the UK. From a substantive perspective, the season underscored an investor preference for targeted governance reforms, and in particular, the removal of supermajority provisions, board declassification, and enhanced special meeting rights.

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Disclosure Standards Don’t Bend to Corporate Preferences

Posted by Robert G. Eccles (Oxford University) and Mika Morse (Goldfinch Strategies), on
Monday, December 15, 2025
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Robert G. Eccles is a Visiting Professor of Management Practice at Oxford University Said Business School, and Mika Morse is the Founder and CEO of Goldfinch Strategies.

When Exxon filed its lawsuit challenging California’s new climate disclosure laws, it framed the issue as a constitutional one: the state is compelling the company to “tell a story” it disagrees with. According to Exxon, requirements to report greenhouse gas (GHG) emissions under SB 253 force it to adopt a narrative about emissions and climate risk that violates its First Amendment rights.

At first glance, this argument seems to align with the standard for judging the constitutionality of compelled speech. Under Zauderer v. Office of Disciplinary Counsel (471 U.S. 626, 1985), the government can compel disclosure of “purely factual and uncontroversial information” as long as the speech is reasonably related to a government interest. But if the information is not “factual and uncontroversial,” the government must prove that the law is narrowly tailored to achieve a compelling interest–the “strict scrutiny” standard of review.

Here, Exxon is asking the court to define GHG emissions disclosures as “controversial” not because it disagrees with carbon accounting generally, but because of the implications of the particular metric California requires. This argument ignores a basic fact about the regulatory disclosures. Companies are routinely required to report standardized metrics, even if they run counter to their preferred narrative. This is particularly true in financial markets, which rely on consistent information to function.

The timing of Exxon’s lawsuit is interesting. Just days before, Exxon helped launch Carbon Measures, an industry coalition to develop new carbon accounting standards. Exxon’s CEO called for better emissions data, saying “if you can’t measure it, you can’t manage it.” The company is now simultaneously arguing that California’s measurement requirements are unconstitutional compelled speech while advocating for different measurement requirements it prefers. The First Amendment doesn’t protect a right to be measured only by metrics of your own choosing. READ MORE »

Translating Climate Science Into Investment Decisions

Posted by Emil Moldovan and Diederik Timmer, Glass Lewis, on
Monday, December 15, 2025
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Emil Moldovan is the Head of Climate Science and Diederik Timmer is the President of Climate Solutions at Glass Lewis. This post is based on their Glass Lewis memorandum.

Key Takeaways

  • Climate science operates at a global, macro scale while corporate finance focuses on company-level analysis. This creates challenges when translating climate data and research into investment signals.
  • Investors must interpret fragmented and uneven climate-related data to determine what is financially material for assessing company financial risks and opportunities.
  • Effective climate analysis requires linking broad, climate-system dynamics with detailed, context-specific company information across sectors.
  • Investor time horizons materially shape how climate transition risks and opportunities manifest in portfolios, with long-term mandates more exposed to macro-economic and structural shifts.
  • Meeting investor needs requires forward-looking, financially relevant climate intelligence that bridges systemic climate forces with company-level decision-making.

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2026 SEC Exam Priorities and Implications for Investment Advisers and Investment Funds

Posted by Timothy Clark, Melissa Hodgman, and David Nicolardi, Freshfields Bruckhaus Deringer LLP, on
Sunday, December 14, 2025
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Timothy Clark is the Global Co-Head of Private Funds and Secondaries, Melissa Hodgman is a Partner, and David Nicolardi is Counsel at Freshfields Bruckhaus Deringer LLP. This post is based on a Freshfields memorandum by Mr. Clark, Ms. Hodgman, Mr. Nicolardi, and Ivet Bell.

On November 17, the SEC’s Division of Exams released its Exam Priorities for Fiscal Year 2026.  See https://www.sec.gov/files/2026-exam-priorities.pdf.  The Division publishes its exam priorities annually to identify issues that SEC exam staff has identified as potential risks and/or expect to focus on during its upcoming exams of regulated entities.  The 2026 priorities for investment advisers and investment funds include certain topics that have been exam priorities in the past (with some change in emphasis or scope, reflecting the views of new SEC leadership), as well as topics relating to upcoming regulatory changes and topics that respond to significant developments in the asset management industry and markets and to evolving technologies.

A summary of the key 2026 Exam Priorities for investment advisers and investment funds is set forth below.  This summary: highlights changes from prior years’ priorities; discusses the implications of these priorities for investment advisers and investment funds; and outlines the steps that investment advisers and investment funds can take to enhance their compliance functions, manage regulatory risks, and prepare for an SEC exam.

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Speech by Commissioner Crenshaw on Investor Protection and Market Transparency

Posted by Caroline A. Crenshaw, U.S. Securities and Exchange Commission, on
Saturday, December 13, 2025
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Caroline A. Crenshaw is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on her recent speech. The views expressed in this post are those of Commissioner Crenshaw and do not necessarily reflect those of the Securities and Exchange Commission or its staff.

Good morning and thank you Aaron [Klein].  It is a pleasure to be here this morning.  While this isn’t a “farewell address,” I hope you will indulge me if I take the opportunity to reflect a little bit on what I’ve learned, what we accomplished prior to this year, and provide commentary on where I think the markets are today and where I think they should be headed. [1]

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The Risk, Reward, and Asset Allocation of Nonprofit Endowment Funds

Posted by Andrew W. Lo (MIT), Egor Matveyev (MIT), and Stefan Zeume (University of Illinois at Urbana-Champaign), on
Friday, December 12, 2025
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Andrew W. Lo is the Charles E. and Susan T. Harris Professor, a Professor of Finance, and the Director of the Laboratory for Financial Engineering at the MIT Sloan School of Management, Egor Matveyev is a Senior Lecturer and Research Scientist in Finance at the MIT Sloan School of Management, and Stefan Zeume is an Assistant Professor of Finance at the University of Illinois at Urbana-Champaign. This post is based on their recent paper.

Nonprofit organizations sit at the center of American civic life. They employ more than 20 million people, deliver essential services across every sector, and support activities that range from scientific research to disaster relief. While endowments are often associated with elite universities, they are in fact used widely across the sector. They provide long-term financial stability for human service agencies, conservation groups, religious organizations, hospitals, museums, and thousands of smaller nonprofits that rely on steady income to sustain their missions.

Despite their importance, little is known about how nonprofit endowments are distributed, how they are invested, or how well they perform. Prior research has focused almost entirely on university endowments, which account for less than 2% of all nonprofit endowment funds. The much larger universe of smaller and more diverse endowments has rarely been examined in a systematic way.

In our paper, “The Risk, Reward, and Asset Allocation of Nonprofit Endowment Funds,” we compile the first comprehensive dataset covering the full universe of U.S. nonprofit endowments. Using IRS Form 990 filings from 2008 to 2020, we study nearly 375,000 nonprofit organizations, including about 40,000 that maintain endowment assets. We combine detailed investment disclosures on Schedule D with governance, compensation, and financial information on the main form to examine how endowment strategy and performance relate to organizational structures and oversight practices.

The results present a mixed picture. Endowments support mission scale and stability, but investment performance varies widely. Many funds underperform simple passive benchmarks, and governance practices are closely linked to these outcomes. For boards, senior executives, donors, and regulators, the findings highlight both the value of endowments and the challenges of overseeing them effectively. READ MORE »

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