Directors' Cut

Although geared primarily toward audit firms, the PCAOB's "Staff Priorities for 2024 Inspections and Interactions With Audit Committees” serves as indirect guidance to audit committees and issuers in preparing for the company's annual audit.

Deloitte’s “Artificial Intelligence: An Emerging Oversight Responsibility for Audit Committees?” discusses the potential role of the audit committee in generative AI as the technology matures over time. The piece differentiates the risks associated with generative AI from other types of risks managed internally and commonly overseen by the board or relevant board committee, which may render it less adaptable to existing risk management and oversight frameworks.

In this statement: “An Investor Protection Call for a Commitment to Professional Skepticism and Audit Quality,” SEC Chief Accountant Paul Munter emphasized the audit committee’s important investor protection gatekeeper role and suggested ways in which the committee should prioritize and promote audit quality, inclusive of audit committee independence; independent auditor selection and oversight, and monitoring of the management/auditor relationship.

EY's "What audit committees are reporting to shareholders” reveals ongoing increases in voluntary disclosure since 2012 about the audit committee's practices and accountability based on an analysis of Fortune 100 proxy statements. See key takeaways here.

According to ISS data as of December 31, 2023, the percentage of Russell 3000 companies disclosing three or more information security-skilled directors is up 30% year-over-year—784 boards in 2023 compared to 603 in 2022.

In "Small-Cap CEOs: Think Twice Before Adding a Large-Cap Executive to Your Board," small-cap company advisor Adam Epstein explains a number of potential pitfalls small public company boards may encounter in appointing large-cap-experienced directors and how to increase the chances of success.

Perkins Coie’s “A Director Needs to Take a Leave of Absence? 5 Considerations” imparts need-to-know information about how to respond and react to a director’s request for a leave of absence or time off (for personal or other reasons) and suggests some potential (albeit limited) workaround. 

Cleary's "Selected Issues for Boards of Directors in 2024" provides a substantive overview, along with practical recommendations, on a number of discrete hot topics (e.g., affirmative action practice guidance in the wake of recent US Supreme Court decisions) that can help bring the board and/or C-suite up to speed on current events, as well as focus the boardroom dialogue. Each topic can be digested on its own either via the memo or online here.

Leveraging a recent decision by the Delaware Court of Chancery involving an Icahn-nominated director, Sullivan & Cromwell’s memo: “Information Sharing Between Activists and Their Director Nominees” imparts key takeaways regarding sharing with a designating stockholder confidential and/or privileged company information received by activist director nominees in their director capacity.

The Society and certain other organizations have long maintained listings of reputable, established director/board education program offerings. The latest Society listing is here. See also these listings from Cooley, Gibson Dunn, and Woodruff Sawyer.

PwC’s “What board members need to know about the SEC climate-related disclosures” summarizes in a tabular format the changes from the proposed rule to the final rule specifically as respects board oversight-related disclosures. Other changes to the disclosure requirements reflected by the final rules are similarly summarized at an appropriately high level. [Note that on April 4, the SEC imposed a stay on the rule pending completion of judicial review in the Eighth Circuit of numerous legal challenges.] 

The results of Pearl Meyer's annual executive pay practices survey of more than 300 public, private, and not-for-profit companies are consistent with an ongoing trend of expanding Compensation Committee oversight responsibilities into areas traditionally maintained at the management level. See key takeaways here.

Willis Towers Watson's analysis of director compensation for S&P 500 companies based on 2023 proxy data reveals notable benchmarking statistics and year-over-year trends.

Farient’s “RIP Compensation Committees?” documents the trend among Russell 3000 public companies toward abandoning the traditional “Compensation Committee” moniker in favor of a committee name that conveys the committee’s assumption of broader human capital responsibilities.

Debevoise & Plimpton’s “2024 Executive Compensation To-Do List for Public Companies” and Wachtell Lipton's "Compensation Season 2024" identify and discuss several discrete compensation practice and disclosure-related areas for near-term management and compensation committee consideration.

With the aim of instructing practitioners on leading and market practices and mitigating concerns about becoming similarly situated, in “It’s Not DE, It’s You: 55 Billion Reasons Tesla is Not ‘Your Company,” Cleary discusses the multiple anomalous and “worst practice” facts and circumstances that resulted in the Delaware Court of Chancery’s decision to void Elon Musk’s $55 billion performance-based stock option package.

“Balancing Purposeful Complexity with Greater Simplicity in Pay Design” from the HRPA Center on Executive Compensation (executive summary here) encourages a rethinking of executive pay design to reduce complexities that include, among many other things, a mismatching of time horizons associated with long-term incentives and TSR calculations and hypothetical (often unrealized) payouts.

In addition to tailorable, sample equity grant procedures and guidelines, White & Case’s “Equity Grant Procedures and Guidelines for the Granting of Equity Awards” includes an illustrative timeline for calendar year companies that suggests the best time to make grants relative to the company’s earnings releases and periodic SEC filings. 

This report from Compensation Advisory Partners: “Do Non-Executive Chairs and Lead Directors Serve on Board Committees?” benchmarked the prevalence of non-executive board chair and lead director service on each of the three key board committees (i.e., Audit, Compensation, Governance) of the 100 largest US companies. See key takeaways here.

Fenwick & West's annual survey benchmarked corporate governance practices and trends among the S&P 100 vs. the 150 largest (by revenue) Silicon Valley technology and life sciences companies. Select observations are here. | Wilson Sonsini’s “2023 Silicon Valley 150 Corporate Governance Report” benchmarked corporate governance practices and trends among the 150 largest Silicon Valley companies—largely concentrated in the technology and life sciences industries.

This Society public company member Quick Survey benchmarked board leadership term limits/rotation and selection.

The Conference Board’s collaborative report: “Driving Board Excellence” provides benchmarking data on board/director education, evaluations, overboarding policies, and committee member rotation practices and policies among S&P 500 and Russell 3000 companies, and associated insights from a recent discussion with leading in-house corporate governance professionals. See key takeaways here.

"What Directors Think"—from Corporate Board Member, Diligent Institute, and BDO—reveals the results of a survey of 250 US public company directors about upcoming challenges and opportunities in the context of ongoing domestic, geopolitical, and macroeconomic volatility. See key takeaways here.

Spencer Stuart’s recent pulse survey of US public company directors reveals individual director assessments moving into the mainstream. See key takeaways here.

Korn Ferry’s review and analysis of S&P 500 listed company 2023 proxy disclosures, conducted in partnership with Gibson Dunn, revealed a number of noteworthy board evaluation practices and disclosure insights and trends. Key takeaways are here.

Semler Brossy’s “Newly Public Companies and Stock Ownership Guidelines” suggests newer public companies consider a series of enumerated factors to focus their decision-making as to whether and when to adopt stock ownership guidelines and provides data on relevant guidelines and principles to support the development process.

Spencer Stuart’s “When an Executive Chair Helps or Hinders Company Performance” shares likely success factors for an executive chair leadership model in relation to CEO succession planning; suggests executive chair responsibilities; and identifies the potential upsides and downsides of this leadership model.

BlackRock released its Engagement Priorities and updated commentaries for 2024. Although the priorities remain consistent with prior years, the narrative and tone continue to evolve to reflect a greater focus on financial resilience and reduced emphasis on ESG and related expectations and demands. See key takeaways here.

arry Fink’s annual letter to investors reflects an ongoing shift in Larry Fink’s and BlackRock’s communications from an ESG focus to a more traditional stewardship approach that explicitly acknowledges BlackRock’s investment of others’ money on their behalf. See key takeaways here.

CalSTRS released updated Corporate Governance Principles (summarized here and redlined here) and Stewardship Priorities, the latter consisting of corporate and market accountability, net zero transition, and workforce and communities.

CalPERS released its "Proxy Voting and Corporate Engagements Update," which highlights its progress and plans vis-à-vis portfolio companies on climate, governance (including executive compensation), and human capital management. The report includes CalPERS’ proxy voting record globally and for US companies from 2019 – 2023.

According to its Responsible Investment report, Norges Bank Investment Management divested from 86 companies in 2023 (of 526 since 2012) due to its determination that they pose high environmental and social risks. See a detailed breakdown and other key takeaways here.

Norges Bank Investment Management released updated Global Voting Guidelines with more stringent board diversity requirements for emerging market companies consisting of at least one director of each gender. The standard remains the same as the 2023 guidelines for developed markets, i.e., at least two directors of each gender. 

In addition to big picture Q2 (2023 proxy season) voting and engagement statistics, State Street’s Stewardship Activity Report details the bases for its trending decline in support for environmental and social shareholder proposals generally, and climate proposals, specifically. See key takeaways and its Q3 2023 report here.

State Street posted its updated proxy voting guidelines and related resources for the 2024 proxy season. Resources and key takeaways are here.

Vanguard’s stewardship piece: “Investment Stewardship - About our Program” includes examples of the types of questions Vanguard asks company management and directors during its engagements around its four pillars of good governance: board composition and effectiveness; board oversight of strategy and risk: executive pay; and shareholder rights.

Vanguard released its 2024 Proxy voting policy for US portfolio companies. A summary of key changes from its 2023 policy is here.

New York City Comptroller Brad Lander and the New York City Retirement Systems released their "2023 Shareowner Initiatives Postseason Report" covering the New York City Pension Funds' shareholder proposal activities and other shareholder initiatives and advocacy efforts for the fiscal year ending June 30, 2023. See key takeaways here.

Pursuant to its 2024 Proxy Voting Guidelines, Fidelity will look for gender-diverse boards rather than the narrower female-diverse boards (as per its 2023 Guidelines) in evaluating board composition and generally will not support natural and human capital-related shareholder proposals that are overly prescriptive.

Wellington Management provided this summary of changes to its Proxy Voting Guidelines for 2024.

T. Rowe Price released updated Proxy Voting Guidelines for the 2024 proxy season, as well as investment policy statements on biodiversity and human rights. See key takeaways here.

Legal & General Investment Management summarized its commitment to human rights issues and expectations of portfolio companies, which are detailed in its recently released policy document. Its nature framework discusses its investment stewardship approach to the circular economy; deforestation; water; and natural capital; expectations for portfolio companies are purportedly forthcoming. 

We blogged these key takeaways from a report available on Squarewell Partners’ AQTION platform (complimentary download here), which provides noteworthy data on the 65 largest institutional investors’ ESG stewardship practices.

Among the many insights from PwC’s US institutional investor survey: Outside of financial performance, respondents ranked corporate governance and management competence equally as the most important considerations for evaluating the companies they invest in or cover. Innovation, emerging technologies and climate (in that order) rounded out the top five.

The Center for Political Accountability attributed reduced (but still relatively high) average support by the largest institutional investors for its model corporate political disclosure resolution in the 2023 proxy season largely to more companies making at least some political disclosure and fewer proposals voted.

EY’s report shares institutional investor views on portfolio company priorities, board quality and effectiveness, engagement priorities, and sustainability-related risks. Notably, investors made clear that aggregate portfolio and company-specific priorities differ from one another. See key takeaways here.

Georgeson’s “Thematic 2024 proxy voting policy updates” summarizes key board-related, executive compensation, shareholder proposal, and other themes across recent proxy voting guideline/policy updates from MFS Investments, Fidelity, Wellington Management Company, Ballie Gifford, and Lord Abbett.

Protiviti’s “Blind Spots in the Boardroom” addresses the realities of inevitable blind spots among directors and management that have the potential to significantly impede a company’s success. The piece provides relatable examples of manifested blind spots, triggers and red flag indicators, and sound guidance for boards to increase their awareness of, manage, and address unidentified and revealed blind spots.

WTW’s “Reassess DEI metrics in executive incentive plans in light of affirmative action ruling” offers compensation-focused guidance to companies on mitigating the risk of a successful legal challenge to their DE&I programs in the aftermath of the Supreme Court’s decision in the Student for Fair Admissions case in the form of review and action items and a reminder for multinationals regarding the US-specific nature of the Court’s decision. 

This WSJ article: “Corporate America Tweaks Diversity Initiatives Amid Pushback” discusses the impact of the Supreme Court’s recent college admissions affirmative action decisions on companies’ DE&I programs and approaches and highlights several outstanding suits challenging the legality of particular alleged “reverse discrimination” and other practices.

Large companies beware: Accounting Today, CFO Dive, CNBC, the Wall Street Journal, and Bloomberg Tax reported that the IRS plans to conduct focused audits on the personal use of corporate jets by executives of large companies and partnerships to determine whether reported business tax deductions are appropriate.

Among other action items suggested in PwC’s “Overseeing cyber risk: the board’s role” is regular reporting to the board, fostered by an annual cyber calendar and inclusive of a cyber dashboard or scorecard (illustrated here on p6) to help the board understand and evaluate current risks, monitor trends, and track the company’s progress against specific metrics. The piece includes common elements of board reporting and suggested areas of oversight, accompanied by relevant benchmarking and suggested next steps.

In this post: “Board Resolutions: Strengthening Compliance Programs,” corporate compliance lawyer Rebecca Walker (Kaplan & Walker) suggests boards consider documenting their support of the company’s ethics and compliance program by adopting a resolution that reflects their commitment and robust oversight. The post identifies provisions to include and consider for inclusion in such resolutions for companies that wish to pursue this approach.

Wilson Sonsini’s “Approaching Shareholder Engagement in 2024” provides guidance and tips on developing, maintaining, and evolving an effective shareholder engagement program.

The Investor Alliance for Human Rights announced that certain of its members filed 14 shareholder proposals with tech companies for the 2024 proxy season aimed at alleged potential human rights abuses associated with their business models.

Edelman Smithfield’s “Directors: Take Activist Threats to Your Reputation with a Grain of Salt” addresses common misperceptions about the impacts of director-targeted shareholder activism on director reputation with a view toward encouraging a better informed and more measured company response. The post also suggests ways in which companies can better prepare—and mitigate the potential—for director-targeted campaigns.

The New York State Comptroller announced (among other things) the divestment by the New York State Common Retirement Fund of holdings in eight integrated oil and gas companies it deems not sufficiently prepared to transition to a low-carbon economy. 

The Shareholder Commons released its 2024 Proxy Voting Guide recommending votes for proposals or against directors across the topics of climate and biodiversity, disinformation and AI, fair wages and economic equality, proxy voting alignment (asset managers), fair treatment of shareholder nominees, political congruency, human rights, and public health. Proponents include Arjuna Capital, As You Sow, John Chevedden, LGIM, Majority Action, SHARE, Trillium Asset Management, Zevin Asset Management, and others.

On behalf of three of the NYC public pension funds and in conjunction with the NYC Comptroller’s Office’s Boardroom Accountability Project 2.0, NYC Comptroller Brad Lander announced the filing of board matrix proposals at two companies. The Comptroller separately announced the filing at another company of a proposal requesting EEO-1 disclosure and agreements with three other companies to make such disclosure.

On behalf of the NY State Common Retirement Fund, the Comptroller announced the filing of numerous DE&I-related shareholder proposals and recent written requests made of certain companies to disclose the gender, racial, and ethnic composition of their directors, which he characterizes as a “best practice.”

“Maximizing the Benefits of ESG Performance Metrics in Executive Incentive Plans” from The Conference Board and Esgauge, in collaboration with FW Cook, benchmarks the use of ESG metrics in executive incentive compensation plans across the S&P 500 and Russell 3000.

In addition to sharing current data on ESG metric/pay integration practices, this report: “Feet to the Fire: How Should Companies Tie Executive Compensation to Climate Targets?” from the Rock Center for Corporate Governance suggests leading practices associated with integrating corporate climate-related objectives into executive compensation based on recent interviews with seven reportedly big name, top-notch public and private companies in the tech, consumer, and industrial sectors.

WTW reported on the US-specific findings of a global study on the use of ESG measures in executive incentive plans. According to the article, 76% of the S&P 500 disclosed the use of at least one ESG metric in their executive incentive plans, with human capital metrics predominating and the use of environmental metrics on the rise.

The Latest Dirty Word in Corporate America: ESG,” the WSJ reported on the trend toward companies avoiding the ESG acronym in favor of other terms (such as sustainability or corporate responsibility) or focusing on key discrete corporate initiatives, such as climate or diversity, and/or changing their practices as to where and how they talk about ESG. The article provides examples of how some companies have modified their messaging.

This Rock Center for Corporate Governance collaborative report: "2023 Survey Of Investors, Retirement Savings, And ESG” reveals a sharp decline in support among young (ages 18 – 41) and middle-aged (ages 42 – 57) retail investors in particular for using their investments to further ESG goals compared to the prior year survey, which we reported on here.

In addition to benchmarking specific initiatives organizations are taking to support their DE&I goals, Littler’s survey of US-based companies across sizes and industries revealed that most are not changing their prioritization or fundamental approach to DE&I notwithstanding the Supreme Court’s recent college admissions affirmative action decisions and corresponding legal concerns.

PwC's "Sustainability and ESG oversight: the corporate director’s guide" addresses the ‘what’, ‘why,’ and ‘how’ of ESG oversight, including ESG terminology; ESG reporting; investor, regulator, and other stakeholder interests; ratings/rating agencies; widely consulted disclosure frameworks and standards; disclosure vehicles; and board oversight considerations. The guide also includes a suggested division of ESG oversight responsibilities across the board and its key committees.

Mayer Brown’s “The Rise and Stall of ESG” recounts the evolution of the ESG movement to date, including the explosion—followed by the (ongoing) retrenchment—in the US, which, based on the movement’s trajectory, appears to have been engendered by excesses in expectations, demands, and behaviors that fail to promote initial intended aims associated with the movement and/or conflict with other behavioral standards, objectives, and ideals.

According to data from FactSet, references to ESG on earnings calls by S&P 500 companies in Q4 2023 fell to their lowest level since Q2 2019, with just 29 companies using the acronym in Q4 compared to a peak of 155 in Q2 2021.