Current Posts

February 12, 2016 | Ning Chiu

Several investors lost the ability to exclude shareholder proposals that requested their boards to issue climate change reports assessing any incongruities between the companies' proxy voting practices and their policy positions.  In the supporting statements, the proponent noted that the investors' parent companies may tout the importance of sustainable investing or ESG factors in deciding where to invest, and yet the investment arms that make voting decisions will abstain from supporting or actually vote against climate change shareholder proposals on the proxies of the investee companies. 

The proposal is modified from the version submitted to several investors last year, which we previously discussed here.  Last year's version focused on a report about proxy voting and was judged to be excludable on the basis of being an... Read More

February 9, 2016 | Ning Chiu

Chair White covered a wide array of topics recently at a securities regulation conference, though the press immediately focused on her comments about the possibility of new rules for disclosing board diversity. Her comments on that and other governance issues follow.

Additional board diversity disclosures being studied. Chair White believes that diversity adds value to boards and makes them function better, and is troubled by the dearth of diversity on boards currently. Speaking personally, she disputes notions that there is a supply problem. In terms of the SEC’s regulatory mandate, the SEC does not require disclosure about board qualifications other than with respect to disclosure rules on director experience, backgrounds and diversity policies.

She recognizes that questions have been raised about whether SEC rules provide sufficient... Read More

February 3, 2016 | Ning Chiu

When companies engage with BlackRock's corporate governance team, they may be asked about the company's "strategic framework for long-term value creation," according to the letter sent to 500 CEOs from Larry Fink, co-founder and CEO of BlackRock. The framework should focus on the future and provide perspective on how a company is navigating competition and innovation, adapting to technology and geopolitical events, and where it is investing and developing talents.

Companies are expected to explicitly affirm to shareholders that their boards have reviewed their strategic plans. Environmental, social and governmental (ESG) issues, which are integrated into BlackRock's investment framework, should also be recognized as central to companies' businesses, in light of increasing attention to those matters.

The letter... Read More

February 1, 2016 | Kyoko Takahashi Lin, Jean M. McLoughlin

Facebook has announced its settlement of a lawsuit filed in June 2014, alleging that its board of directors breached their fiduciary duties and unjustly enriched themselves and wasted corporate assets through the compensation paid to the non-employee directors. To date, we have discussed this case here, here and here.   

As a refresher of the background facts, in 2013, Facebook’s Compensation & Governance Committee... Read More

January 27, 2016 | Ning Chiu

Shareholders at several companies will vote on proposals asking boards to adopt a payout policy that gives preference to share repurchases instead of cash dividends. The proponents' supporting statement extolled the advantages of repurchases as more flexible than dividends and indicated some concern that dividends automatically caused a tax liability for some shareholders.

Companies did not convince the SEC staff in their arguments that the proposals should be excluded. The most common assertion was that the proposal focused on an ordinary business topic. Companies cited numerous prior no-action letters that permitted proposals asking boards to implement share repurchase programs with specific terms to be excluded. Some also argued that the proposals implicate capital allocation decisions that are fundamental to management functions.

The proponent cited to one prior no-action letter from the SEC staff that determined that the issue of whether to pay dividends involves... Read More

January 22, 2016 | Ning Chiu

The WJS’s interactive graph on the 4,500 directors in the S&P 500 provides an interesting compilation of the hot topics of the day, including the number of women on boards, director independence, director age and tenure and pay. It also allows for those metrics to be view on a company or industry-specific basis or by topic category.

The data is based on information as of October 30th and covers companies with market capitalization ranging from $1.5 billion to over $600 billion. For the S&P 500, nearly three-quarters of boards have at least two women directors. At three companies, women make up half of the board. Eleven companies do not have any women directors, a decrease from 59 companies in 2005.

Former CEOs lead the board at 20% of the companies, and CEOs... Read More

January 20, 2016 | Ning Chiu

The U.S. Government Accountability Office (GAO) estimated in a recent report that even if equal proportions of women and men joined boards each year beginning in 2015, it could take more than 40 years for the representation of women directors to equal that of men. The report is in response to a request from Carolyn Maloney, the ranking member of the Subcommittee on Capital Markets and Government Sponsored Enterprises Committee on Financial Services in the House of Representatives. 

The GAO found some progress. In 2014, women made up 16% of board seats in the S&P 1500, up from 8% in 1997. Women now make up more than 20% of new directors. But 33% of small companies and 17% of medium-sized companies have no women on their boards, compared to 4% of large companies. 

According to the GAO, the factors that may hinder representation of women on boards include boards not prioritizing diversity in... Read More

January 15, 2016 | Betty Moy Huber and Michael Comstock

Ceres, an environmental nonprofit organization, released this week an SEC Sustainability Disclosure Search Tool. This tool, available here, is the next step in Ceres’s campaign for increased, and more transparent and comparable, climate change and other sustainability disclosure. (See prior blog posts on this topic available here, here, and here.

The search tool allows registered users to... Read More

January 15, 2016 | Ning Chiu

In charging senior leaders of a failed bank with fraud, the SEC also held two outside directors responsible.

Eleven executives and board members of the bank were charged by the SEC, which claimed that they improperly extended, renewed and rolled over bad loans in order to avoid impairment charges and reporting increased losses for loans and leases in its financial accounting. This contributed to the bank's failure in 2011 and the bank became the 26th largest bank by asset size to fail during the financial crisis.

The SEC complaint cites numerous specific loans and credit situations involving the bank's management. One of the directors was implicated in a particular restructuring when he agreed to assume some of the payments, but in fact was not personally liable due to other extensions of credit by the bank. The SEC alleged that the director either knew of the borrower's... Read More

January 11, 2016 | Ning Chiu

The New York City Comptroller issued a press release today announcing that the New York City pension funds (the Funds) have filed 72 new proxy access shareholder proposals, though many were sent to companies that also received the proposals in 2015. 

This builds on the Boardroom Accountability Project that the Funds initiated in 2015 with 75 proposals.  According to the release, two-thirds of the proposals that went to vote received majority support and 37 of the companies agreed to enact bylaws to date. 

The focus list provides the names of the companies and why they were targeted by the Funds.  It includes 36 companies that received the proposal in 2015 which have not yet enacted, or agreed... Read More