Over the past decade, the public company CFO remit has rapidly evolved beyond the traditional financial scope to include operational and strategic responsibilities. To stay abreast and develop your finance talent as the role continues to evolve, understanding tomorrow’s CFO is paramount.

To better understand the current state of the role and hiring implications, Russell Reynolds Associates recently analyzed the backgrounds, career paths, and tenures of S&P 500 CFOs (N = 500). [1] Based on our findings, we identify three important trends in how CFO appointments have evolved over the years, as the war for talent continues.

1. High turnover leads to an extremely active market
2. Recent strides have been made in promoting women CFOs
3. The S&P 500 landscape is shifting towards strategically-oriented CFOs

Finally, we also review key considerations for CEOs, Boards, and CFOs as they continue to hire and develop their finance talent.

1. An active CFO market has companies forgoing traditional requirements

Over half of S&P 500 CFOs were hired into their role within the past three years. This high churn rate is the result of many factors, including a frothy IPO market in 2021 that significantly increased the number of public company CFO opportunities, as well as overall strong equity performance that allowed some to retire earlier. [2] While recent market slowdowns have slightly cooled the war for talent, increasing retirement rates and the ongoing search for talent from historically unrepresented minority groups, point to a CFO market that is far from stagnant [3] (To read more about CFO turnover in 2022, see our latest research.)

(more…)

Although efforts to improve diversity, inclusion, and equity (DE&I) of employees and leaders in organizations continue, the number of organizations tangibly tracking accountability for the outcome of those efforts is still relatively low.

Russell Reynolds Associates’ 2022 Global Leadership Monitor research identified that just 17% of global leaders we surveyed said executives at their organizations are compensated on DE&I outcomes. Even against a benchmark that low, there is no single industry or region leading the way on DE&I accountability. The Technology industry lags notably behind.

Without accountability metrics, it’s virtually impossible for organizations to measure their leaderships’ performance against DE&I objectives and to compensate them accordingly, as they would with other measures of business performance. As many research studies show the link between DE&I and organizational performance, DE&I metrics should be included more widely as a component of compensation-based accountability models.

(more…)

CEO succession planning works best when it’s a continuous process that constantly replenishes your pipeline of future leaders. And that means you need to start it early. In fact, the board should start planning for the next CEO from the first day a new one steps into the job.

From day one, you need to define what you want in your next CEO, find who in your organization has the potential to get there, and outline how you’ll develop those skills in the coming years. And, when it comes time to choose a successor, you’ll need to accurately assess your candidates to choose the right leader.

The question is, how do you start so early?

How do you define the skills your CEO will need years in advance? How do you find high-potential candidates? And how do you nurture them to ensure they’re ready to step up when the time comes?

Define what you need in a CEO

Great CEO succession starts with a success profile—a documented view of what your organization needs in its next CEO. While it’s difficult to predict the critical requirements for your next CEO five or six years in advance, a success profile will help you think about future needs systematically and align the board early in the process.

The board is solely responsible for appointing the CEO, so members need to discuss the success profile in detail. Unless the board defines and aligns to a robust success profile, you’ll be flying blind as you develop and choose your next CEO.

(more…)

One of a board’s most important responsibilities is selecting the CEO. Most boards have annual succession planning discussions and robust procedures to prepare for a transition. But, recognizing both the shrinking of leaders’ tenures and the shifting skill sets needed for future success, many boards are now making succession planning a continual process. Centered on an ongoing conversation with the CEO, the process might start with one or two candidates and then expand, internally or externally, as needed. Even under ideal conditions, however, succession is a sensitive process.

One way that boards can smooth the process is to prepare for a variety of compensation decisions. Compensation sends important signals, both intended and unintended. Choices about pay should support the motivation and retention of leading candidates as well as individuals in key supporting roles.

For example, the pay of internal candidates will likely need to change as their roles and mandates expand and as the board evaluates their capabilities. With the actual transition, the board may need to adjust compensation for the new CEO, the former CEO, and other executives remaining with the organization, along with any new senior leaders. One-time actions may be required to maintain stability throughout the leadership change.

(more…)

The board plays a critical role in bringing an organization’s strategic vision to life. As stewards, they help guide the organization through challenging times and are responsible for providing sound oversight that can help to sustain future success.

Ideally, the people sitting around the table in a corporate boardroom will each provide different sets of skills, areas of knowledge, and varied work and life experiences that collectively make the board stronger. But when too many sitting directors have similar backgrounds, diversity of perspective can suffer.

Increasing board diversity is by no means a new discussion. There are a number of benefits to board diversity, and directors have shared how valuable it is. According to PwC’s Annual Corporate Directors Survey, directors agree that increasing board diversity brings unique perspectives to the boardroom (93%) and improves relationships with shareholders (90%). More than four out of five say that it enhances board performance (85%), and about three-quarters agree that it improves strategy/risk oversight (76%) and company performance more broadly (75%).

With developments like the new Nasdaq listing requirement, we are already seeing some positive changes. In addition, large institutional investors and other stakeholders are also demanding more diverse boardrooms, but the fact remains—only 30% of director seats at S&P 500 companies are filled by women.

(more…)

The Delaware Chancery Court recently preliminarily enjoined a stockholders meeting in Bray v. Katz, No. 2022-0489-LWW (Del. Ch. June 24, 2022) (transcript). The case concerns a board of directors’ decision in advance of the upcoming annual meeting to lower the quorum requirement for stockholders meetings; it did so in order to preempt certain stockholders from blocking the election of the company’s slate of director nominees. The Court concluded that the board of directors acted with the primary purpose of impeding the exercise of stockholder voting power. Accordingly, the Court determined that the board’s actions implicated the heightened Blasius standard of review, which requires defendants to demonstrate a “compelling justification” for frustrating the stockholder franchise. In an exacting bench opinion, the Court found that defendants failed to demonstrate any such justification. Vice Chancellor Will’s ruling demonstrates the close scrutiny Delaware courts give to corporate acts that entrench the board and disenfranchise stockholders.

Background

UpHealth Inc. (the “Company”) had a nine-person classified board (the “Board”) with two co-chairs. Defendant Avi Katz (“Katz”), founder of the Company’s SPAC sponsor, GigCapital, served as one co-chair; the other co-chair was legacy UpHealth founder and plaintiff Chirinjeev Kathuria (“Kathuria”). The Company’s Class I directors, each serving three-year terms, were up for election at the 2022 annual meeting, originally scheduled for June 28, 2022.

After the Nomination Window Closes, A Majority of the Board Changes the Slate

The Company’s advance notice deadline passed on April 25, 2022, without any stockholder proposing any nominees for election.

(more…)

As predicted in our previous M&A report, 2022 has not lived up to the runaway performance of 2021. As activity—still at impressive levels considering everything that has been thrown at the deal market—takes a breather, we consider five fundamental trends that may play out over the coming months.

1. Rates and financing costs to increase

The increasing interest rate environment has, and will inevitably continue, to make deal financing more costly as spreads widen. Leveraged loans and high-yield bonds are at the riskier end of the curve, and PE firms rely heavily on this financing. It is likely that direct lenders will step in to pick up some of the slack left by more cautious capital markets. Either way, buyers dependent on acquisition financing will need to adjust for this accordingly—potentially, by using their cache of dry powder to write larger equity checks.

2. Acquirers will capitalize on attractive multiples

It is reasonable to expect that M&A activity will continue with a more cautious tone, as it was headed toward the end of the second quarter. However, deals will continue. Companies that set their sights on assets and have a clear, well-articulated strategic rationale for pursuing those deals will press ahead with the support of their shareholder bases. PE has ample dry powder at its disposal and has proven adept at capitalizing on market dislocations in the past. Indeed, the markdown in EBITDA multiples will make many opportunities all the more compelling over the next six to 12 months, and acquisitions made during this period promise to deliver when valuations recover.

(more…)

The war in Ukraine is a human tragedy. From a business management perspective, it is also an example of old-school “global geo-political risk.” But the fast, overwhelming exodus from Russia and support for Ukraine isn’t driven primarily by old-school operational risk concerns over raw material costs and supply chain disruptions. For most companies, the primary enterprise risk of continued engagement with Russia, or the failure to support Ukraine, is to stakeholders’ trust that the company shares their personal values.

The past three years provide a long list of events outside the control of corporate leadership and outside the traditional value chain that nonetheless have presented serious risk to enterprise value. COVID and Ukraine are the obvious global examples. In the US, civil unrest over racial injustice, the January 6 attack on the capital, election law changes, political fights over education and LGBTQ+ rights, and the recent decision by the Supreme Court to overturn Roe v. Wade are all socio-political issues on which employees, customers, investors, and communities want the companies they associate with to take action that aligns with their own beliefs. That call from stakeholders is a strategic issue for companies, as well as a moral one. PwC’s most recent Consumer Intelligence Series shows that more than 80% of consumers/employees are more likely to buy from/work for a company with strong performance on climate issues. More than 70% are more likely to buy from/work for companies with strong performance on social issues and the same for governance issues. Employees and the customer overwhelmingly see environmental, social, and governance (ESG) issues as a reason to connect with a company. And the link between trust and ESG is strongest among young people.

The market data frames a simple question at the heart of nearly every company’s strategy: How do we become the company that everyone between the ages of 15 and 35 wants to work for, buy from and identify with on social media? Getting the answer wrong can: make it impossible to recruit and retain talent; damage the brand and platform; increase capital costs by driving away socially responsible investors; and end executive careers.

(more…)

These Key Findings are based on a dataset downloaded on July 6, 2022 from CEO Succession Practices in the Russell 3000 and S&P 500: Live Dashboard. The Live Dashboard is updated weekly with information on succession announcements about chief executive officers (CEOs) made at Russell 3000 and S&P 500 companies; please browse the Live Dashboard for the most current figures. For comparative purposes, the Live Dashboard includes historical data and breakdowns across business sectors (as classified under the Global Industry Classification Standard, or GICS) and company size groups. See Using this Dashboard for more details.

The project is conducted by The Conference Board and ESG data analytics firm ESGAUGE, in collaboration with executive search firm Heidrick & Struggles.

After declining during the pandemic, the rate of CEO turnover at US public companies is picking up rapidly, as boards regain confidence in their succession plans and recessions concerns prompts some longer-tenured leaders to exit their roles.

During the height of the pandemic, many companies chose to avoid compounding the business risks resulting from the crisis with the uncertainties of a leadership turnover. A clear decline in the 2021 rate of CEO succession indicated that, even in situations where a change might have been planned, many CEOs were asked to prolong their tenure and help to steer the ship. However, preliminary annualized data on the 2022 rate show that those earlier numbers may now be reversing and that this is poised to be a record year for CEO departures. Two factors may help to explain this finding.

First, many CEOs are ready to move on. The pressure of managing during an unprecedented crisis—which, due to the current geopolitical and the looming prospect of a recession, has only accelerated rather than abated—has taken a toll on leaders, especially those who had been planned their retirement for years. Second, boards of directors may be more prepared for change too. In the last two years, they have had the time to stress-test and strengthen their company’s succession plan, gaining more confidence in their ability to execute it.

(more…)

Global ESG regulation is set to make a leap with new requirements for private businesses to report on and prevent adverse impacts on climate, the environment and human rights. We summarise three key regulatory developments that should be on the agenda for large companies.

• CSDDD: The European Commission adopted its proposal for the Corporate Sustainability Due Diligence Directive [1] on 23 February 2022. The CSDDD is an important component of the European Green Deal, [2] as well as a long promised initiative in the EU’s human rights strategy, [3] and will necessitate strategic and operational changes by businesses globally.
• CSRD: Earlier elements of the European Green Deal focused on disclosure: in particular, under the Sustainable Finance Disclosure Regulation, the Taxonomy Regulation and, most recently, the Corporate Sustainability Reporting Directive which has received provisional political agreement and is expected to complete the final stages of formal approval by the Council and European Parliament shortly. The CSRD will update and reinforce the EU’s Non-Financial Reporting Directive, [4] and operate in tandem with the CSDDD. Member States are required to implement the CSRD, and its obligations will start to apply as of 1 January 2024.
• SEC: Meanwhile across the Atlantic on March 21, 2022, the U.S. Securities Exchange Commission (SEC) proposed rules to require climate change disclosure in the annual reports and registration statements of public companies registered with the SEC, including any company (domestic or foreign) whose stock is listed on a U.S. stock exchange. The SEC proposal on climate disclosure rules was long awaited, but comes amidst deep disagreement on the role of the SEC in this area. The SEC recently closed the public comment period on the proposal and must review and respond to comments before issuing any final rules. Litigation challenging the SEC’s authority is likely if the proposed rules are adopted, including arguments based on the “major questions doctrine,” as recently seen in West Virginia v. EPA. [5]

(more…)

On August 25, 2022, the U.S. Securities and Exchange Commission (the SEC) issued final rules on the “pay versus performance” disclosure. These rules, which were in process for over seven years, dramatically expand the information that public companies will be required to disclose regarding the relationship between their executive compensation and the company’s financial and stock price performance.

Under the final rules, most public companies are required to provide in their annual proxy statement or other information statement covering executive compensation:

• a table featuring their executive compensation (both as reported in the summary compensation table (SCT) and adjusted to represent amounts actually paid), their net income, their total shareholder return (TSR), the TSR of their compensation peer group, and a financial performance measure chosen by the company (the Company-Selected Measure), generally over the last five most recently completed fiscal years;
• a clear description of the relationship between the compensation actually paid to their executives and the financial metrics disclosed in the table as well as the relationship between the company’s TSR and the compensation peer group TSR; and
• a table (the Tabular List) of the most important performance measures used by the company to link compensation actually paid to the executives to company performance.

These new disclosures must be included with proxy statements or other information statements that cover executive compensation for fiscal years ending on or after December 16, 2022. For most public companies, including calendar-year public companies whose fiscal year ends on December 31, this disclosure will be required beginning with their next annual proxy statement to be filed with the SEC in 2023.

(more…)

In Colonial times, there were “joint stock corporations,” then came our modern-day corporations, then “limited liability companies” (LLCs). Now there are DAOs—“decentralized autonomous organizations.”

DAOs (pronounced “Dows”) are a new kind of entity, regarded by their enthusiasts not as “companies” at all but as collections of individuals organized around the decentralization, autonomous functioning, transparency, and bottom-up principles that characterize the digital universe. DAOs have been created for varied purposes, both charitable and profit-making. Although most have been focused on cyber-related projects, their presence has been expanding beyond the cyber realm. For example, “SPADs”—which are SPACs (special purpose acquisition vehicles) that are DAOs—have emerged to engage in the acquisition of physical target companies. Some investors, dubbing DAOs “the new LLCs,” expect that they will become a significant form of business entity in the very near-term. Indeed, DAOs have experienced explosive growth in the past couple of years.

At the same time, DAOs face significant challenges and present significant risks. While many DAOs have been successful in raising large amounts of money in short periods of time, most (at least those formed for non-crypto-related purposes) have had a notable lack of success in achieving the missions for which the funds were raised. Further, the technological infrastructure is complicated and the legal structures can be cumbersome. Most significant are the risks presented by continued legal uncertainty (with respect to liability issues; regulatory uncertainty (including treatment under the securities, tax, antitrust and insolvency laws); cryptocurrency price fluctuations; cybersecurity breaches; and still-nascent and varied industry customs and practices.)

Thus, it remains unclear whether, how, and to what extent DAOs might displace traditional organizational structures. But they represent an increasingly popular and potentially transformational business idea, rooted in the mindset and methods of modern times—making them worthy of attention as they evolve.

(more…)

The costs and benefits of national, state, and local policies intended to inhibit the transmission of COVID-19 and protect public health are the subject of an ongoing debate in the U.S. At the heart of this debate is the trade-off between the benefits of opening up an economy and the potential risks to public health. In particular, social distancing and other policies that limit the spread of COVID-19 (e.g., wearing masks, travel restrictions, limiting number of customers in a store) can also reduce economic activity.

Evidence from academic studies and surveys indicates that political and cultural beliefs are associated with individual attitudes towards both COVID-19 and policies intended to limit virus transmission. Individuals identifying themselves as Democrats are more likely to adopt stricter social distancing measures compared to those identifying themselves as Republicans. Such attitudes and beliefs about the pandemic and the economic costs and benefits of social distancing are likely to extend to CEOs and other firm executives. Restrictive policies that aim to protect the health of store employees and customers can impose a burden on a firm and its customers, reducing store visits. Conversely, lenient policies that aim to boost store traffic can provide a channel for virus transmission. We note that differences in ideology do not mean that Republicans solely prioritize the economic benefits of opening the economy over the potential public health risks, or that Democrats are unaware that restricting commerce to provide public health benefits can have detrimental effects on the economy. Political leanings, however, are likely to tip the scale in how political ideology affects prioritizing the potential trade-offs.

In our paper, CEO Political Leanings and Store-Level Economic Activity during the COVID-19 Crisis: Effects on Shareholder Value and Public Health, (Journal of Finance, October 2022), we provide evidence of a trade-off between firm-level economic activity and public health concerns at the onset of the COVID-19 pandemic. We show that CEO political leanings affect this trade-off.

(more…)

IMPLEMENTING CYBERSECURITY WITHIN THE NASDAQ ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG) FRAMEWORK

This policy brief discusses cybersecurity from the corporate governance standpoint and illustrates how Nasdaq can implement cybersecurity into its ESG Reporting Guide, which is used by many public and private companies globally. The intersection of a company’s cybersecurity and ESG is a new corporate governance model. Cybersecurity has become a prevalent issue, specifically in the context of the digital economy, as corporate stakeholders require cyberattacks and security breaches to be proactively measured and mitigated in governing enterprise-wide risk management. Additionally, cybersecurity has gained wider attention due to increasingly impactful data breaches (i.e., SolarWinds) and the shift to remote working environments. As companies prioritize ESG, the inclusion of cybersecurity into their ESG governance framework is critical to manage the risks posed by cybersecurity to their ESG efforts. Nasdaq’s ESG Reporting Guide is a leading standard within the global capital markets for companies implementing ESG policies and metrics. This policy brief provides a use case demonstrating the implementation of the National Institute of Standards and Technology’s (NIST) Cybersecurity Framework into the Nasdaq ESG Reporting Guide. This can aid in encouraging more enhanced cybersecurity governance and improvements for the global capital markets.

WHY IS CYBERSECURITY CRITICAL TO AN ESG FRAMEWORK?

OPTIMIZING ESG THROUGH CYBERSECURITY GOVERNANCE

Since the inception of ESG practices, cybersecurity has not been considered a key component of ESG. However, with the increase in high-profile data breaches, the acceleration of the global digital economy, and the shift to remote working environments, cybersecurity has rapidly become integral to ESG. Leading institutions, like JPMorgan, suggest that considering cybersecurity as an ESG metric is a relatively new model, however all evidence points to continued interest of this new model by organizational stakeholders across the board. [1] For instance, a 2019 survey by RBC Asset Management on investing concluded that 67% of investor respondents from the U.S., Europe, Asia, and Canada ranked cybersecurity as a top concern. [2] Core cybersecurity spending reached $68 billion in 2020, consisting of major spending in infrastructure protection, network security equipment, integrated risk management, and application security. [1] A Bloomberg report estimates cybersecurity spending to surpass $200 billion annually by 2024. [3] Given the rising importance of cybersecurity to a company’s operational and financial performance, it has become a key ESG issue and should be implemented within a company’s ESG practices.

(more…)

Whether they are new executive leaders or longtime members of a corporate board, directors and officers should be considering two prongs of protection—a robust insurance program and a tailored indemnification agreement.

Directors and officers can face significant personal exposure whenever their company is involved in a dispute or investigation. For example, for the past 10+ years, stockholder litigation has accompanied 80% to 90% of public M&A deals, in which stockholders assert breach of fiduciary duty claims or disclosure claims. Ongoing market volatility and increased regulatory efforts add to the potential for exposure. Prudent directors and officers—and any funds that place them on boards or in leadership positions—should avail themselves of all available legal protections in charter provisions, D&O insurance and indemnification agreements individualized to their needs.

In fact, looking to the company for indemnification vis-à-vis its charter provisions and indemnification agreements is generally the first line of defense. As an initial point, individualized indemnification agreements offer several advantages over any indemnification provisions in organizational documents, as outlined below.

Easier enforcement

Indemnification agreements may be more easily enforced by directors and officers because they are bilateral contracts reflecting bargained-for consideration in the form of an individual’s agreement to accept or continue service with the company—and cannot be amended without the directors’ and officers’ consent.

(more…)

About the proposal

• On March 21, 2022, the SEC issued proposed rule, The Enhancement and Standardization of Climate-Related Disclosures for Investors.
• The comment period closed on June 17. We have identified key themes from the responses.
• Regardless of this proposal, compliance with existing requirements includes the 2010 climate-related guidance issued by the SEC staff.

Get a recap

• This post assumes a working knowledge of the proposal.
• For a brief recap on the proposal, see our Defining Issues, SEC proposes climate reporting and assurance rules.
• To understand the proposal in more depth, see the Top 10 questions in our talk book, Understanding the SEC’s climate proposal.

Toward a final rule

• The SEC’s Spring 2022 regulatory agenda shows publication of a final rule in October 2022.
• Other ESG-related items on the regulatory agenda include proposals related to human capital management disclosures (October 2022) and corporate board diversity (April 2023); and finalization of ESG requirements for investment companies and investment advisers (see our Defining Issues on the proposals).

(more…)

The banking industry has undergone substantial changes since the late 1970s, largely due to deregulation and rapid market developments. Over that period, banks’ growth opportunities expanded, and banks entered new markets, both geographic and product. Motivated by the 2008 financial crisis, researchers and policymakers have shown a renewed interest in corporate governance in the banking industry, with most of the attention focused on the incentives arising from compensation and ownership (e.g., Fahlenbrach and Stulz 2011; Cheng, Hong, and Scheinkman 2015; DeYoung, Peng, and Yan 2013). In particular, several studies attribute changes in the structure of CEO compensation and incentives to the effects of banking deregulation on market opportunities and competition (e.g., Cunat and Guadalupe 2009; DeYoung et al. 2013).

We add to this discussion by examining the interplay between banking deregulation and CEO turnover decisions. Using the staggered adoption of interstate branching laws between 1995 and 1997 as our setting, we investigate whether the performance and risk exposure information used in bank CEO turnover decisions has been affected by the trend towards deregulation in the banking industry. We argue that the examination of measures used in CEO turnover decisions provides unique insights into governance—because directors themselves must make decisions about a CEO’s continued employment, turnover decisions directly reflect board policies. In contrast, most variation in CEO wealth stems from changes in the value of stock and option holdings, so the incentives arising from the CEO’s compensation are partly delegated to the equity markets (Hall and Liebman 1998; Edmans, Gabaix, and Jenter 2017). Furthermore, the board’s management of tensions between financial stability and shareholders’ demand for higher returns is an important aspect of bank governance in the banking deregulation setting. CEO incentives embedded in equity compensation encourage risk taking that might or might not enhance firm value (Bolton, Mehran, and Shapiro 2015; Stulz 2015). In essence, equity compensation is an out-of-the-money call option whose value increases with risk, and may not provide incentives to constrain extreme risk taking. The CEO turnover setting can provide evidence about board policies that mitigate downside tail risk exposure, along with other insights that are not directly evident from examining incentives from CEO compensation and ownership.

We investigate whether banking deregulation affects the weights on performance and risk exposure measures used in bank CEO turnover decisions. Using the difference-in-differences framework, we study how deregulation affects the relation between bank CEO turnover and performance (measured by both earnings and stock returns), as well as the relation between turnover and extreme risk exposure (measured by tail risk). We find that bank CEO turnover is significantly less sensitive to accounting performance in the post-deregulation period. In contrast, bank CEO turnover becomes significantly sensitive to stock return after deregulation. Moreover, we find a positive relation between idiosyncratic tail risk and CEO turnover in the post-deregulation period for banks. The positive relation between bank CEO turnover and idiosyncratic tail risk is consistent with the notion that bank boards use turnover policies to discipline extreme risk-taking activities as the banking industry is deregulated.

(more…)

Executive Summary

The Securities and Exchange Commission (SEC) released its final version of the rules mandated by Dodd-Frank regarding the disclosure of pay versus performance (PVP) on August 25, 2022. Initial rules were proposed in 2015, and follow-up proposals and invitations for comment were extended in late 2021 and early 2022 by the SEC. The SEC PVP disclosure is intended to provide investors with a clear analysis of the alignment of the top executives’ compensation actually paid (CAP) with the company’s financial and stock price performance. This analysis, while complex, may be viewed by investors as a window into the governance and workings of the company’s pay for performance model.

Pay Governance LLC has prepared this post with the intent of providing our clients and interested parties with a comprehensive yet clear picture of this new SEC disclosure requirement. This Executive Summary provides a snapshot of the new rules. The sections that follow the Executive Summary provide our interpretation of the SEC rules along with some commentary on the implications of the new disclosure. We want our readers to know, however, that we will be providing additional analysis and recommendations regarding the rules in the weeks ahead as we have time to study the SEC’s recommended rules more carefully.

We also encourage SEC-filing companies to begin gathering the data and developing the PVP discussion needed to comply with the new disclosure requirements. There is a great deal of disclosure detail that companies can begin to draft immediately; please refer to the last section of this post where we have recommended steps companies can take to initiate this process.

(more…)

Introduction

The data on say-on-pay negative recommendations derives from ISS publications and SEC disclosure summarizing the rationales with respect to the negative recommendations issued by ISS at annual meetings of Russell 3000 and S&P 500 companies through June 30, 2022. We estimate that around 90% of U.S. public companies held their 2022 annual meetings by that date.

ISS Say-on-Pay and Equity Compensation Plan Voting

A. Companies Maintain Strong Say-on-Pay Performance

The following summarizes say-on-pay voting results for full-year 2021 and through June 30 for 2022. The number of failed say-on-pay votes has increased meaningfully since 2018. Among the S&P 500, the number of failed votes has more than doubled since 2018 (18 in 2022 compared to seven in 2018), while the number among the Russell 3000 has increased from 54 in 2018 to 64 in 2022. However, broadly speaking, U.S. companies received similar support on say-on-pay votes in 2022 as they did in prior years. This year, shareholder support on say-on-pay votes averaged 88% among S&P 500 companies (same as 2021, compared to 90% in 2020 and 2019 and 91% in 2018), and 90% among the broader Russell 3000 (compared to 91% in 2018 through 2021).

(more…)

This post is based on a comment letter submitted to the SEC regarding the Proposed SEC Climate Disclosure Rule by Glass, Lewis & Co. Below is the text of the letter with minor adjustments to eliminate the correspondence-related parts.

Founded in 2003, Glass Lewis is a leading independent proxy advisor. Glass Lewis serves more than 1,300 institutional investor clients—primarily public pension funds, mutual funds and other institutions that invest on behalf of individual investors and have a fiduciary duty to act, including through proxy voting, in the best interests of their beneficiaries. As a proxy advisor, Glass Lewis provides proxy research and vote management services to institutional investor clients throughout the world. While, for the most part, investor clients use Glass Lewis research to help them make proxy voting decisions, these institutions also use Glass Lewis research when engaging with companies before and after shareholder meetings. Glass Lewis engages with some 1000 companies in over 40 jurisdictions each year. Many of our clients leverage these engagement meetings, as well as Glass Lewis’ related active ownership services, as part of their own stewardship programs. Further, through Glass Lewis’ web-based vote management system, Viewpoint, Glass Lewis provides investor clients with the means to receive, reconcile, and vote ballots according to custom voting guidelines and record-keep, audit, report, and disclose their proxy votes.

The proposed rules seek to ensure that funds’ and advisers’ use of ESG factors is transparent and aligned with their stated objectives. In the release’s words, the proposed rules are intended “to create a consistent, comparable, and decision-useful regulatory framework for ESG advisory services and investment companies to inform and protect investors while facilitating further innovation in this evolving area of the asset management industry.”

(more…)