Yearly Archives: 2025

2025 U.S. Proxy Season: Midseason Review Finds Sharp Drop in Shareholder Resolutions on Ballot

Posted by Subodh Mishra, ISS STOXX, on
Monday, May 26, 2025
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Subodh Mishra is Global Head of Communications at ISS STOXX. This post is based on an ISS-Corporate memorandum by Jun Frank, Managing Director, Global Head of Compensation & Governance Advisory at ISS-Corporate.

As May 22 is the peak of the U.S. proxy season, with 137 Russell 3000 companies expected to hold annual meetings today, ISS-Corporate has examined early trends in shareholder proposals and executive compensation. The shareholder proposal landscape has drastically changed this proxy season – notably, the total number of proposals submitted and voted on has decreased drastically while the number of proposals omitted has risen. Governance proposals remain common, although their focus has shifted. While fewer environmental and social proposals have made the ballot, those related to greenhouse gas (GHG) emissions remain popular. This analysis reviews Russell 3000 companies with annual meetings between January 1 through June 30 for each year since 2021. 

Key Takeaways

  • Total shareholder proposal submissions have dropped while the number of omitted proposals has increased sharply.
  • Governance-related resolutions remain the most common type on the ballot.
  • Despite a significant decline in environmental proposals being voted on, resolutions related to GHG emissions, generally requesting enhanced disclosure, remain common.
  • Median CEO pay is at an all-time high for both S&P 500 and Russell 3000 companies.
  • Say-on-Pay support levels have declined slightly. While overall support remains strong, there are signs of trouble ahead.

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From Code to Compensation: The HighStakes Race for AI Talent

Posted by Ryan Colucci, Compensation Advisory Partners, on
Sunday, May 25, 2025
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Ryan Colucci is a Principal at Compensation Advisory Partners. This post is based on his CAP memorandum.

As artificial intelligence continues to reshape industries and redefine how companies operate, organizations are under increasing pressure to build leadership and governance structures that can keep pace. In response, a growing number of S&P 500 companies are elevating AI to the executive level through formal leadership roles, while others are embedding oversight responsibilities into existing C-suite functions and board committees. This evolving landscape reflects not only the strategic importance of AI but also the complexity of managing its opportunities and risks across the enterprise.

At the same time, these developments are raising important questions about compensation, from how to attract specialized AI talent to how companies recognize new responsibilities taken on by existing leaders and directors. In the sections that follow, we examine how companies are structuring AI leadership and oversight today, and what this means for executive and board compensation in the years ahead.

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Stewardship in AQTION: How the World’s Largest Investors Handle Their Assets

Posted by Ali Saribas, AQTION, on
Saturday, May 24, 2025
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Ali Saribas is a Partner at AQTION. This post is based on his AQTION study.

AQTION, leveraging its proprietary database powered by SquareWell Partners, published its second review on how the world’s largest 65 investors (hereafter referred to as the “Top 65”) are evaluating governance and sustainability issues and stewarding their portfolios. Together these investors (including some of the largest Assets Managers, Sovereign Wealth Funds, and Pension Funds) have nearly USD 91 trillion in Assets Under Management (AUM). See a summary post of the findings from last year’s study.

In this year’s analysis of the Top 65, the composition of the universe remains almost identical with the previous year, with only one change: Voya Investment Management (Asset Manager, US) replacing Baillie Gifford (Asset Manager, UK). To maintain comparability, the study retained the same factors used in the previous year’s assessment, while also incorporating new factors designed to capture investor sentiment on emerging topics of interest, such as artificial intelligence.

Notably, this year’s analysis looked athow these influential investors voted on high-profile situations. This includes, for example, the 2024 board contest at Walt Disney and the controversial approval of Elon Musk’s multi-billion dollar pay package at Tesla. These real-world examples offer valuable context to understand how the Top 65 investors are exercising their influence on critical corporate governance matters.

The full report is available here. Below, we highlight some of the key takeaways from AQTION’s review of the stewardship activities of the Top 65 investors, with selected points explored in greater depth.

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Delaware Tells Companies: ‘Let’s Stay Together’

Posted by Edward B. Micheletti, and Jenness E. Parker, Skadden, Arps, Slate, Meagher & Flom LLP, on
Friday, May 23, 2025
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Edward B. Micheletti and Jenness E. Parker are Partners at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on their Skadden memorandum, and is part of the Delaware law series; links to other posts in the series are available here.

Key Points

  • While there have been some vocal critics of Delaware corporations law, few major companies have reincorporated in other states, and Delaware incorporation continues to offer substantial benefits to companies and stockholders.
  • Recent amendments to Delaware’s corporations law create safe harbors for companies, controlling stockholders, directors and officers involved in transactions where there are possible conflicts of interest if they follow newly clarified procedural steps.
  • The statutory changes provide greater clarity and certainty and should help reduce litigation over transactions.

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Weekly Roundup: May 16-22, 2025

Posted by the Harvard Law School Forum on Corporate Governance, on
Friday, May 23, 2025

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This roundup contains a collection of the posts published on the Forum during the week of May 16-22, 2025

Delaware Supreme Court Decision Suggests Drafting Points for Indemnification Notice Provisions –Thompson v. Sonova

Posted by Gail Weinstein, Philip Richter, and Steven Epstein, Fried, Frank, Harris, Shriver & Jacobson LLP, on Friday, May 16, 2025
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Remarks of Commissioner Mark T. Uyeda At the 12th Annual Conference on Financial Market Regulation

Posted by Mark T. Uyeda, U.S. Securities and Exchange Commission, on Saturday, May 17, 2025
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Statement by Chair Atkins on the Upcoming Executive Compensation Roundtable

Posted by Paul Atkins, U.S. Securities and Exchange Commission, U.S. Securities and Exchange Commission, on Sunday, May 18, 2025
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Chancery Court Dismisses Claims Relating to Sale of Company against Private Equity Majority Owner

Posted by Jason Halper, Peter Marshall, and Francisco Morales Barron, Vinson & Elkins LLP, on Monday, May 19, 2025
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Remarks by Chair Atkins at the 12th Annual Conference on Financial Market Regulation

Posted by Paul Atkins, U.S. Securities and Exchange Commission, on Monday, May 19, 2025
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Compensation Arrangement Considerations in Light of 2025 Tariffs

Posted by Alessandra Murata and Michael Bergmann, Cooley LLP, on Tuesday, May 20, 2025
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Remarks by Commissioner Crenshaw Before SEC Speaks

Posted by Caroline A. Crenshaw, U.S. Securities and Exchange Commission, on Tuesday, May 20, 2025
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Remarks by Chair Atkins Before SEC Speaks

Posted by Paul Atkins, U.S. Securities and Exchange Commission, on Tuesday, May 20, 2025
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Texas Corporate Law Changes Challenge Delaware’s Dominance

Posted by David Bell, Dean Kristy, and Ran Ben-Tzur, Fenwick & West LLP, on Wednesday, May 21, 2025
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Climate Boards: Do Natural Disaster Experiences Make Directors More Prosocial?

Posted by Sehoon Kim (University of Florida), Bernadette A. Minton (Ohio State University), and Rohan Williamson (Georgetown University), on Wednesday, May 21, 2025
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Board Leadership in an Era of Upheaval

Posted by Rusty O’Kelley, Todd Safferstone, and PJ Neal, Russell Reynolds Associates, on Wednesday, May 21, 2025
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Evolution of AI Washing Enforcement: DOJ Enters the Picture

Posted by Joel M. Cohen, Gabriella Margaux Pérez Klein, and Robert DeNault, White & Case LLP, on Thursday, May 22, 2025
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The Role of Taxes in the Rise of ETFs

Posted by Rabih Moussawi (Villanova University), Ke Shen (Lehigh University), and Raisa Velthuis (Villanova University), on Thursday, May 22, 2025
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Why Do ISS Recommendations “Against” Say on Pay Spike in June?

Posted by Ben Burney, Exequity LLP, on Thursday, May 22, 2025
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Why Do ISS Recommendations “Against” Say on Pay Spike in June?

Posted by Ben Burney, Exequity LLP, on
Thursday, May 22, 2025
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Ben Burney is a Principal at Exequity, LLP. This post is based on his Exequity memorandum.

Key Takeaways

  • The rate of ISS recommendations “Against” say-on-pay proposals peaks in June.
  • The causes of spikes in “Against” recommendations for June meetings are unclear.
  • The findings give rise to questions as to why the “June Phenomenon” occurs.

Introduction

Proxy season is underway for most US-based publicly traded companies, with April, May, and June representing the busiest months of the year for annual meetings. This is also ISS’s busy season, over which it publishes thousands of reports. For boards of directors, ISS recommendations are of keen interest, and many appreciate being apprised of broader trends in voting results of key peers and in the general market.

Most compensation committees (and compensation consultants) also pay close attention to the rate of “Against” recommendations issued by ISS on the Advisory Vote on Executive Compensation, better known as say on pay (SOP). The impact of ISS’s recommendations is significant: An “Against” recommendation on SOP routinely lowers shareholder votes in favor by 20% to 30%.

ISS “Against” recommendations for Russell 3000 companies fell in 2024 versus the prior several years to ~11%, below the ~12% long-term average going back to the inception of SOP votes and corresponding ISS recommendations in 2011. As of April 30, 2025, the ISS “Against” rate is low: ~7%.

The low rate of ISS “Against” recommendations could give some sense of relief to boards with meetings in May and June, but history shows us that the mid-proxy season results may be deceiving.

In fact, as much as there is a seasonality to proxy filings and annual meetings, there seems to be seasonality to ISS recommendations. Exequity analyzed SOP voting results and ISS “Against” recommendations month by month from 2011 to 2024. [1] The data indicates that companies with annual meetings in June are more likely to receive adverse recommendations from ISS than those holding meetings in other months.

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The Role of Taxes in the Rise of ETFs

Posted by Rabih Moussawi (Villanova University), Ke Shen (Lehigh University), and Raisa Velthuis (Villanova University), on
Thursday, May 22, 2025
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Rabih Moussawi is a Professor of Finance at Villanova University, Ke Shen is an Assistant Professor of Finance at Lehigh University, and Raisa Velthuis is an Associate Professor of Finance at Villanova University. This post is based on their recent paper. 

The growing popularity of Exchange-Traded Funds (ETFs) among long-term investors is, to a large extent, driven by their fee and tax efficiencies. Leveraging their unique security design, ETFs achieve their tax efficiency through the in-kind redemption process and the use of heartbeat trades, by offloading low-basis stocks without triggering a taxable event, pursuant to the exemption provided by Section 852(b)(6) of the U.S. Internal Revenue Code. The ETF tax efficiency is particularly appealing to high-net-worth individuals and other tax-sensitive investors. Our paper provides novel evidence underscoring the importance of the in-kind redemption exemption in realizing ETFs’ superior tax efficiency and pinpoints the resulting tax-driven investor migration from mutual funds to ETFs by focusing on the behavior of investment advisers that manage the assets of high-net-worth individuals.

ETFs are hardwired to take advantage of Section 852(b)(6), which exempts the distribution of capital gains when the appreciated shares are handed “in kind” to redeeming investors. Therefore, ETFs are inherently tax efficient because redemptions are generally made “in kind” with authorized participants, thereby avoiding capital gains distributions and their tax consequences for taxable investors. In contrast, mutual funds, absent the layer of authorized participants, typically engage in “cash” transactions to meet investor redemptions. Because in-kind redemptions are much costlier for mutual fund investors and are only possible for redemption transactions above $250,000, mutual funds have historically made little use of the in-kind redemption exemption.

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Evolution of AI Washing Enforcement: DOJ Enters the Picture

Posted by Joel M. Cohen, Gabriella Margaux Pérez Klein, and Robert DeNault, White & Case LLP, on
Thursday, May 22, 2025
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Joel M. Cohen is a Partner, and Gabriella Margaux Pérez Klein and Robert DeNault are Associates, at White & Case LLP. This post is based on their White & Case memorandum.

On April 9, the US Department of Justice and Securities and Exchange Commission announced parallel cases against the founder and former CEO of an artificial intelligence startup for allegedly misleading investors about his former company’s product capabilities. The cases are the latest salvo in regulatory focus on AI companies and their public statements about the products they offer.

Background

Last week, the DOJ charged the founder and former CEO of an AI startup with securities fraud and wire fraud for allegedly making false and misleading statements about the company’s use of proprietary artificial intelligence and its operational capabilities. [1] This new AI prosecution follows our previous predictions that regulators are becoming increasingly consequential in circumstances where they believe companies make public statements to investors or customers about AI products. As attorneys at the DOJ and the SEC sharpen their understanding of AI, it is becoming clearer where lines can be drawn in developing cases in connection with statements about AI products.

This outcome is also notable because it seeks a meaningfully harsher result in a case that bears many similar facts to another recent investigation into public statements concerning an AI-based product, where only the SEC acted and on more modest terms. Just four months earlier, the SEC settled a matter alleging similar conduct and similar facts on the basis of negligent fraud, with no fines or financial penalties. [2] Four months later, both the DOJ and the SEC are pursuing criminal and civil fraud charges against the founder and former CEO of a company for allegedly similar conduct. These differences reflect the emerging confidence of DOJ to pursue criminal cases involving AI.

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Board Leadership in an Era of Upheaval

Posted by Rusty O’Kelley, Todd Safferstone, and PJ Neal, Russell Reynolds Associates, on
Wednesday, May 21, 2025
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Rusty O’Kelley is a Managing Director, Todd Safferstone is the the Head of Strategy and Excellence, and PJ Neal is the Global Head of Operations at Russell Reynolds Associates. This post is based on a Russell Reynolds memorandum by Mr. O’Kelley, Mr. Safferstone, Mr. Neal, Laura Sanderson, Justus O’Brien, and David Finke.

Recent tariff announcements by the United States—and ensuing trade tensions and market volatility—have triggered waves of both activity and uncertainty in executive suites and boardrooms. Companies are now grappling with policy volatility, inflationary concerns, and geopolitical instability on top of the existing challenges of artificial intelligence and other forms of disruptive innovation, and growing stakeholder pressure on a variety of business and social issues.  Significant downturns in the equity markets are only adding to the difficulty.

In a recent interview on CNBC, Delta Airlines CEO Ed Bastian remarked at how “we’re in uncharted, unprecedented, uncertainty,” adding that these pivots were a “self-inflicted situation.” He went on to note that “whether you’re a corporate manager trying to figure out whether you want to step forward on an investment, whether you’re a bond trader in the markets trying to allocate capital, or even as a consumer, I think everything has stalled. So there’s been a freeze. Until we get better clarity […] I think our economy is going to continue to lose steam.”

For global enterprises, the difficulties multiply. Critical issues such as sustainability, diversity, technology, and governance are being viewed and regulated in diametrically opposite manners across markets. Directors and executives in these companies can’t move in any direction without risking backlash from governments and stakeholders in certain regions, but will likely also generate criticism from within for not making potentially unpopular moves that have the support of the workforce.

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Climate Boards: Do Natural Disaster Experiences Make Directors More Prosocial?

Posted by Sehoon Kim (University of Florida), Bernadette A. Minton (Ohio State University), and Rohan Williamson (Georgetown University), on
Wednesday, May 21, 2025
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Sehoon Kim is an Assistant Professor of Finance at The University of Florida, Bernadette A. Minton is a Professor of Finance at The Ohio State University, and Rohan Williamson is a Professor of Finance at Georgetown University. This post is based on their recent paper.

The role of individual experiences in corporate decision-making has long been a subject of interest for academics and practitioners. Our recently published NBER working paper (“Climate Boards: Do Natural Disaster Experiences Make Directors More Prosocial?”) delves into this relationship within the context of corporate climate policy.

This study investigates whether the past experiences of corporate directors with abnormally devastating natural disasters influence firms’ greenhouse gas emissions and the adoption of formal climate policies. Our findings suggest that directors who had experienced salient climatic disasters in the past are significantly more likely to be affiliated with nonprofit organizations, consistent with heightened prosocial preferences. Moreover, firms with more of these types of directors exhibit lower greenhouse gas (GHG) emission intensities and are more likely to implement robust climate policies. This research makes important contributions to our understanding of the drivers behind corporate sustainability initiatives, highlighting the role of personal, impactful experiences in shaping prosocial preferences that manifest in boardroom decisions. READ MORE »

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