Tag: Sustainability


2016 Proxy Season: Engagement, Transparency, Proxy Access

Howard B. Dicker is a partner in the Public Company Advisory Group of Weil, Gotshal & Manges LLP. This post is based on a Weil publication; the complete publication, including footnotes and appendix, is available here. Related research from the Program on Corporate Governance includes Lucian Bebchuk’s The Case for Shareholder Access to the Ballot and The Myth of the Shareholder Franchise (discussed on the Forum here), and Private Ordering and the Proxy Access Debate by Lucian Bebchuk and Scott Hirst (discussed on the Forum here).

While shareholders have a wide spectrum of views on corporate objectives, the time horizon for realizing these objectives and environmental, social and governance (ESG) issues, there is an emerging consensus that—regardless of size, industry or profitability—public companies must achieve greater accountability to their shareholders, through engagement and transparency, than ever before. Corporate engagement and transparency now take two forms: direct dialogue, increasingly involving directors, and enhanced proxy statement and other public disclosure that sheds light on the company’s strategy and the performance of its board, board committees and management, demonstrates responsiveness to shareholder ESG concerns, and justifies the composition of the board in light of the company’s present needs. Throughout this post, we offer practical suggestions about “what to do now” to meet shareholder expectations about engagement and transparency and to address a host of other new developments for the 2016 proxy season.

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Glass Lewis’ Updated Voting Policy Guidelines

Andrew R. Brownstein is partner and co-chair of the Corporate practice group, and David A. Katz is a partner specializing in the areas of mergers and acquisitions, corporate governance and activism, and crisis management at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton memorandum by Mr. Brownstein, Mr. Katz, David M. Silk, Trevor S. NorwitzSabastian V. Niles, and S. Iliana Ongun.

Glass Lewis has released updated U.S. proxy voting guidelines for the 2016 proxy season. Key areas of focus include: (i) nominating committee performance; (ii) changing the Glass Lewis approach to exclusive forum provisions if adopted in the context of an initial public offering; (iii) director “overboarding;” (iv) evaluation of conflicting management and shareholder proposals when both are put to a vote of shareholders; and (v) withhold recommendations in the context of failures of environmental and social risk oversight.

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Securing Our Nation’s Economic Future

Leo E. Strine, Jr. is Chief Justice of the Delaware Supreme Court, the Austin Wakeman Scott Lecturer on Law and a Senior Fellow of the Harvard Law School Program on Corporate Governance. This post is based on Chief Justice Strine’s recent keynote address to the Fellows Colloquium of the American College of Governance Counsel, available here. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here), The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here), and Can We Do Better by Ordinary Investors? A Pragmatic Reaction to the Dueling Ideological Mythologists of Corporate Law, by Leo E. Strine (discussed on the Forum here).

These days it has become fashionable to talk about a subject some of us have been addressing for some time: [1] whether the incentive system for the governance of American corporations optimally encourages long-term investment, sustainable policies, and therefore creates the most long-term economic and social benefit for American workers and investors. Many commentators have come to the conclusion that the answer to that question is no. They bemoan the pressures that can lead corporate managers to quick fixes like offshoring, which might give a balance sheet a short-term benefit, but cut our nation’s long-term prospects. They lament the relative tilt in corporate spending toward stock buybacks and away from spending on capital expenditures. They look at situations where corporations took environmental or other regulatory short-cuts, which ended up in disaster, and ask whether anyone is thinking about sustainable approaches. They rightly point to the accounting gimmickry involved in several high-profile debacles and ask what it has to do with the creation of long-term wealth for human investors.

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Active Ownership

Oğuzhan Karakaş is Assistant Professor of Finance at Boston College. This post is based on an article authored by Professor Karakaş; Elroy Dimson, Professor of Finance at London Business School; and Xi Li, Assistant Professor of Accounting at Temple University. Related research from the Program on Corporate Governance includes Socially Responsible Firms by Allen Ferrell, Hao Liang, and Luc Renneboog (discussed on the Forum here).

In our paper, Active Ownership, forthcoming in the Review of Financial Studies, we analyze highly intensive engagements on environmental, social, and governance (ESG) issues by a large institutional investor with a major commitment to responsible investment (hereafter “ESG activism” or “active ownership”). Given the relative lack of research on environmentally and socially themed engagements, we emphasize the environmental and social (ES) engagements throughout the paper and use the corporate governance (CG) engagements as a basis for comparison.

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Sustainability Practices 2015

Matteo Tonello is Managing Director at The Conference Board, Inc. This post relates to Sustainability Practices 2015, an annual benchmarking report authored by Mr. Tonello and Thomas Singer. The complete publication, including footnotes, graphics, and appendices, is available here.

More US companies are aligning sustainability disclosure with global standards through the Global Reporting Initiative (GRI) framework. Even though the overall environmental and social disclosure rate among global companies has remained essentially unchanged over the last year, reporting using the GRI framework continued its rise in the United States, and one out of three large U.S. companies now adopt those guidelines. Exceptional progress has also been made in the transparency of individual practices, such as anti-bribery and climate change.

These are some of the findings from The Conference Board Sustainability Practices Dashboard 2015, a comprehensive database and online benchmarking tool that serves as the foundation for this report. The dashboard captures the most recent disclosure of environmental and social practices by large public companies around the world and segments them by market index, geography, sector, and revenue group. Other key findings from this year’s data include the following:

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Preliminary 2015 Proxy Season Review

Subodh Mishra is Executive Director for Communications and Head of Governance Exchange at Institutional Shareholder Services. This post is based on an ISS white paper by Patrick McGurn, Special Counsel and Head of Strategic Research and Analysis, and Edward Kamonjoh, U.S. Head of Strategic Research and Analysis. The complete publication is available here.

Momentum is the buzzword that best describes the 2015 Proxy Season in the U.S. market. Some issues, such as proxy access, hit the ground running and emerged as ballot box juggernauts. Other topics, such as calls for independent board chairs and heightened scrutiny of human rights, stumbled and lost ground. Some new ideas, such as hybrid climate change risk initiatives aimed at impacting board deliberations on compensation and CAPEX, failed to catch fire. Despite the rising proxy access tide, E&S proposals swamped their governance and compensation cousins in the pre-season family reunion headcount. However, big submission numbers failed to translate into growing support. Just one environmental proposal managed to win majority support in the year’s first six months.

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Corporate Investment in ESG Practices

Matteo Tonello is managing director at The Conference Board, Inc. This post relates to an issue of The Conference Board’s Director Notes series and was authored by Mr. Tonello and Thomas Singer. The complete publication, including footnotes and Appendix, is available here.

Corporate investment in environmental, social, and governance (ESG) practices has been widely investigated in recent years. Studies show that a business corporation may benefit from these resource allocations on multiple levels, ranging from higher market and accounting performance to improved reputation and stakeholder relations. However, poor data quality and the lack of a universally adopted framework for the disclosure of extra-financial information have hindered the field of research. This post reviews empirical analyses of the return on investment in ESG initiatives, outlines five pillars of the business case for corporate sustainability, and discusses why the positive correlations found by some academics remain disputed by others.

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New Investor Guide on Engaging on ESG Issues

Elizabeth Ising is a partner and Co-Chair of the Securities Regulation and Corporate Governance practice group at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn Securities Regulation and Corporate Governance Monitor blog post by Ms. Ising.

On May 28, 2015, BlackRock and Ceres released a guide for investors on engaging with public companies, asset managers and policymakers on environmental, social and governance (“ESG”) sustainability matters. The guide, titled “21st Century Engagement: Investor Strategies for Incorporating ESG Considerations into Corporate Interactions,” includes sections written by BlackRock and Ceres as well as AFL-CIO, California Public Employees Retirement System (“CalPERS”), California State Teachers Retirement System (“CalSTRS”), Council of Institutional Investors (“CII”), International Corporate Governance Network (“ICGN”), the Office of New York City Comptroller, New York State Common Retirement Fund, North Carolina Department of State Treasurer, PGGM, State Board of Administration of Florida, TIAA-CREF, T. Rowe Price and UAW Retiree Medical Benefits Trust.

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Corporations and the 99%: Team Production Revisited

Shlomit Azgad-Tromer is a researcher at Tel Aviv University—Buchmann Faculty of Law. This post is based on the article Corporations and the 99%: Team Production Revisited. Related research from the Program on Corporate Governance includes The Growth of Executive Pay by Lucian Bebchuk and Yaniv Grinstein, and The CEO Pay Slice by Lucian Bebchuk and Jesse Fried (discussed on the Forum here).

“We Are the 99%” is a political slogan used by the Occupy Wall Street movement, referring to the prevailing wealth and income inequality, and claiming a divergence of corporate America from the public. The article explores the interaction between the general public and the public corporation, and its legal manifestation.

Stakeholder theory portrays the corporation as a sphere of cooperation between all stakeholder constituencies, including the general public. Revisiting team production analysis, the article argues that while several constituencies indeed form part of the corporate team, others are exogenous to the corporate enterprise. Employees, suppliers and financiers contribute together to the common corporate enterprise, enjoying a long-term relational contract with the corporation, while retail consumers contract with the corporation at arm’s length, and other people living alongside the corporation do not contract with it at all. Under this organizational model, the general public may participate in the team forming the corporate enterprise by providing public financing. Indeed, corporate law was developed to protect public investors.

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Shareholder Proposal Landscape

The following post comes to us from Ernst & Young LLP, and is based on a publication by the EY Center for Board Matters.

Institutional investors are increasingly communicating their expectations around governance through direct engagement and letter writing campaigns. Still, some continue to rely on shareholder proposals to trigger dialogue and help ensure a topic is raised at the board level.

Investors that submit proposals generally view them as an invitation to a discussion, preferring to reach agreement with the targeted company without the proposal going to a vote. If agreement cannot be reached, they generally believe that votes on shareholder proposals provide management with valuable insights into investor views.

The EY Center for Board Matters recently had conversations with 50 institutional investors, investor associations and advisors on their corporate governance views and priorities for the 2015 proxy season.

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