Yearly Archives: 2025

Recent Developments for Directors

Posted by Julia Thompson, Keith Halverstam, and Jenna Cooper, Latham & Watkins LLP, on
Thursday, February 13, 2025
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Julia Thompson, Keith Halverstam, and Jenna Cooper are Partners at Latham & Watkins LLP. This post is based on a Latham memorandum by Ms. Thompson, Mr. Halverstam, Ms. Cooper, Charles Ruck, Ryan Maierson, and Joel Trotter.

New SEC Chair Expected to Take Agency Back to Basics

President Trump’s nominee for SEC Chair, Paul Atkins, advocates a business-friendly, light-touch regulatory philosophy and is expected to lead the agency to retether its rulemaking to the SEC’s three-part statutory mission — facilitating capital formation; protecting investors; and maintaining fair, orderly, and efficient markets. Atkins previously served on the SEC Staff from 1990 to 1994 and as an SEC Commissioner from 2002 to 2008. In recent years, the SEC has faced legal challenges to sweeping and ambitious rulemaking efforts — covering subjects from climate change to daily share repurchase activity to board diversity mandates — that courts have paused or invalidated in response to claims that the SEC exceeded its statutory authority. In the coming years, companies can expect the SEC to concentrate its efforts on more traditional areas of disclosure regulation, limited by what is material to investors, in contrast to the agency’s more expansive regulatory approach in recent years.

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Voting on ESG: A Gap Becomes a Gulf

Posted by Lindsey Stewart, Morningstar, Inc., on
Wednesday, February 12, 2025
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Lindsey Stewart is Director of Investment Stewardship Research at Morningstar, Inc. This post is based on a Morningstar memorandum by Mr. Stewart, River Meng, and Quinn Rennell.

Key Observations

U.S. support for E&S proposals fell further in 2024. 

  • U.S. managers further reduced their backing for environmental and social (E&S) proposals in the 2024 proxy year. Average support by 20 large U.S. firms for significant E&S shareholder resolutions funds fell to 31% in 2024 from a 2021 peak of 54%.
  • For the first time in the last five proxy years, U.S. firms’ support for environmental resolutions fell below that for social resolutions, against the backdrop of growing political scrutiny of asset managers’ net zero aspirations.

Stable support by European and U.S. sustainable funds.

  • In contrast to the U.S., votes by 15 European firms for the same resolutions was consistently very high, averaging 96% over the last five proxy years.
  • Support for these resolutions by 308 U.S. sustainable funds was substantially higher than the 20 U.S. firms’ average. The funds averaged 68% support over five years, peaking at 77% in 2021.
  • Unlike the U.S. firms’ average, which fell, average support by sustainable funds was stable in 2024 compared with 2023, at just over 60%.

More U.S. firms decided to cut support in 2024.

  • For the second year in a row, most of the 20 U.S. firms we assessed showed a declining trend in support in the 2024 proxy year.
  • Columbia Threadneedle, Invesco and State Street substantially cut their support for significant E&S resolutions for the first time in 2024.
  • Several other U.S. firms – including BlackRock, J.P. Morgan and Vanguard – cut their support further in 2024 having reduced their support already in 2023.

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Corporate Climate Commitments: Empty Promises or Profit-Driven Strategy?

Posted by Viral V. Acharya (NYU Stern School of Business), Robert F. Engle (NYU Stern School of Business), and Olivier Wang (NYU Stern School of Business), on
Wednesday, February 12, 2025
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Viral V. Acharya is the C.V. Starr Professor of Economics in the Department of Finance at NYU Stern School of Business, Robert F. Engle is the Professor Emeritus of Finance at NYU Stern School of Business, and Olivier Wang is an Assistant Professor of Finance at NYU Stern School of Business. This post is based on their recent paper. 

The surge of corporate climate pledges worldwide raises a fundamental question: Are these commitments the latest incarnation of cheap talk and greenwashing, or could they meaningfully accelerate decarbonization, even if firms are purely profit-driven? The 2015 Paris Agreement marked a turning point in climate negotiations, with nearly 200 nations committing to achieve “Net Zero” greenhouse gas emissions by 2050. Effective climate policy requires addressing a dual externality: not only should carbon emissions be taxed to mitigate climate damages directly, but green innovation should also be subsidized to take advantage of technological spillovers between firms and minimize the economic costs of decarbonization. Indeed, recent empirical work sheds some light on the appropriate policy mix: innovation subsidies could be efficient for innovation incentives, but green innovation alone, without carbon pricing, fails to reduce emissions. These findings reinforce the theoretical argument for policy complementarity. Yet government pledges to date lack specific enforcement mechanisms, and governments have struggled to implement credible long-run climate policies, in part due to extreme political uncertainty. The need for an efficient policy mix makes the lack of government credibility especially concerning.

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A Significant Shift Away from ESG and Toward Crypto Is Expected at the SEC

Posted by Brian V. Breheny, Raquel Fox, and Sydney E. Smith, Skadden, Arps, Slate, Meagher & Flom LLP, on
Wednesday, February 12, 2025
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Brian V. Breheny and Raquel Fox are Partners, and Sydney E. Smith is an Associate, at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on their Skadden memorandum.

Key Points

  • The SEC is set to undergo sweeping changes under the second Trump administration, with a Republican-controlled Commission setting a new agenda.
  • The agency is expected to focus on easing regulatory burdens and creating a crypto-friendly regulatory framework, as well as on capital formation and an enforcement program that focuses on investor harms.

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Shareholder Democracy and the Challenge of Dual Class Share Structures

Posted by Ignacio Garcia Giner, Matteo Felleca, and Jackie Cook, Morningstar, Inc., on
Tuesday, February 11, 2025
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Ignacio Garcia Giner is a Senior Analyst, Matteo Felleca is an Analyst, and Jackie Cook is a Director at Morningstar, Inc. This post is based on their Morningstar memorandum.

One share, one vote is a basic principle of shareholder democracy. It protects minority shareholder voices in markets with dispersed ownership. Multi-class share structures violate this principle. They give subsets of a company’s equity owners superior voting rights, so that their influence outweighs their economic interest.

Our 2024 post-proxy season analysis shows that, for companies with differential share voting rights, reported vote results often deviate significantly from estimated broad market shareholder sentiment on resolutions that shape important aspects of corporate governance. Multi-class structures can distort key governance signals, limiting the influence of minority shareholders on issues ranging from executive compensation to environmental, social, and governance (ESG) resolutions. Systemic risks may also arise as a growing number of companies, particularly in the tech sector, adopt this share structure at their initial public offering. [1]

As a minimum safeguard, companies should be required to disclose their vote outcomes by share class, to better represent the market signal conveyed via proxy voting, and to ward off weaker market-wide governance practices. [2]

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Economic Surveillance using Corporate Text

Posted by Stephan Hollander (Tilburg University), on
Tuesday, February 11, 2025
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Stephan Hollander is a Professor of Financial Accounting at Tilburg University. This post is based on a NBER working paper by Professor Hollander, Professor Tarek Alexander Hassan, Professor Aakash Kalyani, Professor Laurence van Lent, Mr. Markus Schwedeler, and Professor Ahmed Tahoun.

Over the past decennium, we have witnessed a significant growth in the volume of company-released text data, ranging from transcripts of periodic earnings calls—in which company management discusses their firms’ financial performance, future outlook, and strategic initiatives—to an extensive array of regulatory filings required of companies traded on U.S. stock exchanges. Economists are increasingly recognizing its potential as a powerful resource for economic analysis and insights.

In our article, we discuss how to apply various computational linguistics tools to analyze unstructured texts provided by firms, uncovering how markets and firms respond to economic shocks—whether caused by a natural disaster or geopolitical event—offering insights often beyond the scope of traditional data sources. We highlight examples of corporate-text analysis, including earnings call transcripts, companies’ patent documents, and job postings.

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Glass Lewis and ISS Publish 2025 Updates

Posted by Courtney Mathes, Brandon Gantus, and Mark Cornillez-Ty, Wilson Sonsini Goodrich & Rosati, on
Tuesday, February 11, 2025
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Brandon Gantus is a Partner, and Courtney Mathes and Mark Cornillez-Ty are Associates, at Wilson Sonsini Goodrich & Rosati. This post is based on a WSGR memorandum by Mr. Gantus, Ms. Mathes, Mr. Cornillez-Ty, Richard Blake, Jose Macias, and Lisa Stimmell.

On November 14, 2024, Glass Lewis published its 2025 U.S. Benchmark Policy Guidelines (U.S. Guidelines), and its 2025 Shareholder Proposals & ESG-Related Benchmark Policy Guidelines (ESG Guidelines), both effective for shareholder meetings held on or after January 1, 2025. On December 17, 2024, ISS Governance published its Benchmark Policy Changes for 2025: U.S., Canada, and Americas Regional (ISS Guidelines), effective for shareholder meetings held on or after February 1, 2025.[1] This alert summarizes updates made to these voting policy guidelines.

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A Review of Director Commitments Policies, 2023 to 2024

Posted by Samuel Nolledo, Sarah Wenger, and Aaron Wendt, Glass, Lewis & Co., on
Monday, February 10, 2025
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Samuel Nolledo is a Research Analyst, Sarah Wenger is Senior Analyst, and Aaron Wendt is Director of U.S. Governance Policy at Glass, Lewis & Co. This post is based on a Glass Lewis memorandum by Mr. Nolledo, Ms. Wenger, Mr. Wendt, and Dimitri Zagoroff.

In recent years, director commitments policies have become more prevalent at U.S.-based companies. Director commitments policies can reduce risks stemming from potentially overcommitted directors, facilitate active board refreshment and ensure that a board engages in thoughtful dialogue around director time commitments. Many institutional investors are incorporating director commitments policies into their evaluation of directors and proxy voting guidelines, and in response companies are increasingly implementing them.

In this post, we follow up on our prior analysis with a review of the increased adoption of director commitments policies over the past year and the evolution of their design and disclosure.

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Strategic Insider Trading and Its Consequences for Outsiders: Evidence From the Eighteenth Century

Posted by Mathijs Cosemans (Erasmus University) and Rik Frehen (Tilburg University), on
Monday, February 10, 2025
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Mathijs Cosemans is an Associate Professor of Finance at Erasmus University, and Rik Frehen is a Professor of Finance at Tilburg University. This post is based on their recent article forthcoming in the Journal of Financial Economics.

Motivation

Information asymmetry is inherent to trading and will always remain a threat to the fairness and integrity of financial markets. It is therefore important to understand how informed investors exploit their information advantage and how their strategic trading behavior affects uninformed investors. In our paper Strategic Insider Trading and its Consequences for Outsiders: Evidence from the Eighteenth Century, which is published in the Journal of Financial Economics, we answer these questions using unique hand-collected data from the early eighteenth-century London stock market. Because there were no legal restrictions on insider trading in this era, we can better identify the value of private information and the trading behavior of insiders.

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President Trump Acts to Roll Back DEI Initiatives

Posted by Tracy Richelle High, Julia M. Jordan, and Ann-Elizabeth Ostrager, Sullivan & Cromwell LLP, on
Monday, February 10, 2025
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Tracy Richelle High, Julia M. Jordan, and Ann-Elizabeth Ostrager are Partners at Sullivan & Cromwell LLP. This post is based on a Sullivan & Cromwell memorandum by Ms. High, Ms. Jordan, Ms. Ostrager, Diane L. McGimsey, Scott D. Miller, and William S. Wolfe.

Executive Orders:

  • Require Attorney General to Recommend Measures to Encourage Private Sector to End Illegal DEI Practices
  • Establish Federal Policy of Two Genders Only, Cease Virtually All DEI-Related Activities in the Federal Workforce, and Cancel Affirmative Action Requirements for Federal Contractors

Summary

Consistent with President Trump’s campaign promises, the White House has taken swift and significant actions to roll back diversity, equity, and inclusion (“DEI”) programs and initiatives through executive orders. The executive orders direct the Attorney General, in consultation with the heads of relevant federal agencies, to identify private sector companies with “egregious and discriminatory” DEI programs, signaling potential investigations of publicly traded corporations and large non-profits as well as litigation and potential “regulatory action and sub-regulatory guidance” impacting the private sector. The executive orders establish a federal policy of recognizing two genders only, cease virtually all DEI-related activities in the federal workforce, and rescind a number of DEI-related executive orders issued by prior administrations, including Executive Order 11246, which requires federal contractors to implement affirmative action programs.

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