Directors' Cut Archive

Deloitte summarized audit committee priorities and strategies to enhance committee effectiveness based on select benchmarking data from its collaborative report with the CAQ (we reported on here). Results in response to certain questions are broken out by financial services and non-financial services companies in the full report.

The CAQ’s: “Audit Committee Oversight in the Age of Generative AI” identifies and elaborates on six logical areas of audit committee oversight in relation to the company’s use of Generative AI in the financial reporting process. Each oversight area is accompanied by suggested questions for the committee to discuss with management and the auditor, which are summarized in Appendix A.

In this report: “Inspection Observations Related to Auditor Independence,” the PCAOB details its observations of audit firm practices that reportedly have fallen short of various aspects of auditor independence-related standards or rules and suggests good practices to promote compliance, including tips for audit committees (page 28).

“Declaration of Non-Independents: A Survey of Non-Independent Directors at S&P 500 Companies” from Jenner & Block reveals the results of the firm’s review and analysis of recently filed S&P 500 proxy statements, which revealed 161 companies with multiple (most commonly two) non-independent directors.

Spencer Stuart’s “2024 S&P 500 New Director and Diversity Snapshot” reveals numerous statistics on the profile of new directors and the representation of diverse directors on S&P 500 boards based on proxy statements filed between May 1, 2023, and April 30, 2024.

This post: “Navigating the Nuances of Board Diversity in NASDAQ-Listed Companies” highlights the board diversity disclosures of Nasdaq-listed companies that either (i) failed to have the requisite number of “diverse” directors (as defined by Nasdaq’s listing rule) and thus had to explain why they don’t or (ii) disclosed that they were unable to make a determination.

In addition to noteworthy data, this report: “Environmental Performance Metrics in Incentive Plans: Incentive and Key Design Considerations” from Pay Governance and SustainaBase aims to help companies determine which environmental topics to focus on and how to establish measurable goals, and outlines incentive plan design components companies should consider if/when they decide to jump on this bandwagon.

In “Peer Groups for U.S. Executive Pay-Setting,” Glass Lewis discusses common approaches to creating peer groups for executive pay purposes; widely accepted and criticized uses of such peer groups; and its proprietary peer group methodology used for its pay for performance analysis. The accompanying blog post summarizes the report.

In “How boards should implement the SEC’s clawback rule,” Aon advises boards to—among other things—adopt an internal clawback implementation plan to effect a mandatory clawback prompted by a restatement pursuant to the SEC’s new clawback rule. Numerous boards reportedly have already tasked their Compensation Committee with oversight of the company’s clawback policy and have amended their committee charters accordingly.

Society public company members responding to the Society / Deloitte survey: “Board oversight of culture” provided insights on how their boards oversee the corporate culture.

Equally beneficial to management tasked with disclosure responsibilities, KPMG’s “Oversight of climate disclosures” is aimed at providing guidance to boards and audit committees on steps they can take to oversee management’s state of preparedness for more—and more robust—mandatory and voluntary climate-related disclosure.

Nasdaq’s “Navigating the Sustainability Disclosure Conundrum: A Practical Guide for Boards & Leaders” provides a high level overview of sustainability and climate-related reporting standards and frameworks and the most well known ESG raters and suggests areas of inquiry for boards vis-à-vis their companies’ sustainability practices to help facilitate effective oversight.

Bank Director’s “2024 Compensation & Talent Survey” benchmarks numerous corporate governance and compensation practices based on a survey of nearly 200 independent directors, board chairs, CEOs, human resources officers, and other executives of public, private, and mutual US banks with less than $100 billion in assets, and review of fiscal 2023 proxy statements (as to public company compensation data). See key takeaways here.

Jones Day’s “Under Pressure—Rethinking Board Practices” suggests numerous approaches boards may consider to address ever-increasing expectations, regulatory mandates, and legal pressures influencing the breadth and quality of board oversight and involvement. Coverage includes board meetings and meeting materials, the utilization of existing and potentially additional board committees, board-accessible people resources, director commitments, and more.

Among other takeaways, 70% of 751 directors responding to Spencer Stuart’s pulse survey identified long-term strategy/performance as a topic needing more discussion time in the boardroom—leading other enumerated topics such as CEO succession and talent/human capital—by a wide margin. On the flip side, more than 25% of respondents identified activism and ESG as needing less discussion time, trumping other topics including DE&I, short-term strategy / performance, and geopolitical issues.

Gartner’s “Best Practices in Creating Effective Board Agendas” includes sound tips for developing annual board and committee meeting calendars, building and organizing meeting agendas, and developing meeting preread materials.

Bank Director’s “2024 Governance Best Practices Survey" includes a plethora of benchmarking data on core corporate governance practices among banks under $100 billion in assets based on an Spring 2024 survey of 178 independent directors, board chairs, and CEOs.

Among other key takeaways from Deloitte’s recent survey of 100 private company leaders (management members, board members, and partners/owners): At least half of respondents indicated that company performance and corporate strategy input and oversight were on the board agenda at every board meeting over the last 12 months, and that talent was on the agenda quarterly.

“Tips for Improving Board Communications and Effectiveness” from Deloitte offers sound guidance for board meeting preread materials and board presentations aimed at promoting well-informed board decision-making and board effectiveness.

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.

“DEI and Best Practices in Corporate America: Harvard/UNC One Year Later” from Morgan Lewis reviews the current state of play regarding DE&I-related litigation that makes for a murky and challenging environment for companies seeking clarity regarding the legality of their DE&I practices, programs, and initiatives. The report suggests companies consider undertaking a privileged review of their practices and initiatives and notes other risk-mitigation activities companies may consider.

Beneficial for both boards and management, WTW’s “Human Capital Governance: A Practical Guide for Boards” dissects key components of the board’s oversight of human capital and then puts them back together again with sound suggestions for critically evaluating and evolving the metrics regularly reported to the board, board structure and accountability, and human capital reporting.

Responding to director survey results, “How Boards Can Champion a Resilient Talent Strategy” from Corporate Board Member and EY discusses the impediments to evaluating and understanding employee sentiment and tactics directors use to mitigate the absence of reliable workforce information or data.

Sidley’s “Evolving Legal Landscape of DE&I: Considerations for Boards” (NACD Online) suggests a series of sound considerations to oversee, manage, and mitigate risks associated with the company’s DE&I practices, programs, initiatives, and objectives in the context of the current legal, regulatory, and political environment.

BlackRock launched climate and decarbonization stewardship guidelines (summarized here) for funds and clients explicitly directing investment towards decarbonization. For clients who have not directed prioritization of climate risks and decarbonization as an investment objective, BlackRock will continue to focus solely on advancing their long-term economic interests in accordance with its benchmark policies.

Legal & General Investment Management’s water policy articulates its water management stewardship approach, including its minimum expectations for investee companies with regard to water-related risks both from the standpoint of impacts to the company and the company’s impacts on water. LGIM plans to integrate water into its proxy voting policies in 2025 and will also consider supporting shareholder proposals consistent with its water policy.

CalSTRS announced that inadequate climate risk disclosures triggered its vote against directors at a record-breaking 2,258 companies globally. Its minimum climate-related disclosure expectations for all portfolio companies consist of TCFD-aligned reporting and Scopes 1 and 2 GHG emissions disclosure.

BlackRock's 2024 Global Voting Spotlight reveals a plethora of noteworthy statistics, case studies, and instructive commentary. See key takeaways here.

anguard's U.S. Regional Brief captures its US-specific investment stewardship activities for the 12 months ended June 30, 2024. See key takeaways here. Its concurrently published Quarterly Key Votes Report (Q2 2024) illustrates Vanguard’s perspective on particular topics.

According to its voting report for the first half of 2024, Norges Bank Investment Management’s (NBIM) level of support for environmental and social shareholder proposals declined to its lowest level since 2017. The report reiterates NBIM’s shareholder proposal decision-making framework and also details the concerns that prompted its votes against board/management recommendations.

Legal & General Investment Management’s natural capital management policy articulates its nature stewardship approach, including its expectations for investee companies with regard to nature-related risks and opportunities, both from the standpoint of impacts to the company and the company’s impacts on nature.

“The Nominating and Governance Committee Chair Has the Most Precarious Seat on the Board” from Russell Reynolds Associates discusses the trend toward investors’ withholding of voting support for Russell 3000 Nominating/Governance Committee chairs as a means of accountability for a wide range of expectations including board diversity, director independence, board refreshment, board performance, shareholder rights, board responsiveness, and CEO succession. The firm advises boards to stay current on investor expectations and to consider voluntarily enhancing and disclosing practices accordingly to reduce and mitigate risks associated with investor non-support.

Spencer Stuart's annual survey of S&P 500 Nominating/Governance Committee chairs revealed insights on director recruiting and refreshment, top priorities over the next three years, and director education opportunities.

lthough aimed at fund directors, the director onboarding practice suggestions and considerations shared in this blog series from the Mutual Fund Directors Forum are equally applicable to all types of organizations: Mentor/Buddy Programs | Board Leadership | Building a Board Culture | Setting New Board Members up for Success | Onboarding Education.

PwC’s “The critical role of director onboarding” includes guidance on how to tailor new director onboarding to first-time directors, seasoned directors, and activist directors/designees; detailed content recommendations and considerations; and proposed meetings and topics to address with board leadership and numerous key members of management. Appendix A includes suggested onboarding content and meetings for each of the three key board committees.

In Kellner v. AIM Immunotech Inc. (summarized here), the Delaware Supreme Court clarified the standards of review applicable to advance notice bylaws in both the “clear” and “cloudy” day scenarios. The decision provides helpful guidance to companies regarding the litigation risks associated with adopted or contemplated advance notice bylaw provisions and amendments.

In “Board Minute Best Practices” (Directors & Boards), counsel with Dechert outline and elaborate on the components necessary to establish attorney-client privilege in the minutes context and offer associated practice pointers.

Based on a facilitated discussion with board members, Foley & Lardner’s “Navigating a Shifting World: Geopolitical Risks and Your Board's Role” poses a series of questions for the board to ask management to ensure the company’s processes and practices promote timely identification, evaluation, and mitigation of increasing—and increasingly impactful—geopolitical risks.

Equally beneficial for boards and management, Protiviti’s “Implications of the Changing U.S. Regulatory Landscape” discusses the uncertainty associated with the Supreme Court’s recent reversal of Chevron deference; identifies potential opportunities and risks for companies associated with the decision; and suggests risk mitigation tactics.

In addition to context regarding directors’ duty of oversight, Gartner’s “Expanded Duty of Oversight” includes a checklist of suggested action items to objectively evaluate and enhance: (i) the company’s information systems and escalation procedures relating to critical risks; (ii) how and how often relevant risk information is reported to the board or board committee(s); and (iii) the adequacy of meeting minute documentation of the board’s risk oversight responsibilities.

Among other noteworthy insights from an interview with the New York City Comptroller’s Office Yumi Narita: Yumi indicates that pension funds file shareholder proposals as a first step in their engagement process due to time constraints. The interview affirms the NYC’s support in using shareholder proposals to effect changes in corporate practices and its willingness to withdraw proposals upon reaching acceptable agreements with the targeted companies.

On behalf of the New York State Common Retirement Fund, the New York State Comptroller recounted his engagement with portfolio companies on their political spending-related policies, procedures, and disclosure, which consisted of proposal withdrawals and negotiated agreements; shareholder proposals; and new requests for comprehensive disclosure.

Fenwick reported that the Investor Coalition for Equal Votes, which is composed largely of institutional investors and investor-governed nonprofits advocating for a one-share, one-vote structure, launched a letter campaign aimed at late-stage private companies to either go public with a one-share, one-vote structure already in place or a time-based sunset clause for any dual class share structure of no more than seven years from the date of the IPO.

Expressed in the context of financial and systemic risk, the Nature Collective Impact Coalition—a coalition of institutional investors focused on corporate impact and dependency on nature and related disclosure, called on more than 800 companies evaluated under the World Benchmarking Alliance Nature Benchmark to assess and disclose their impacts and dependencies on nature within their own operations, as well as their value chains.

Wachtell Lipton's memo: "Dealing with Activist Hedge Funds and Other Activist Investors" offers a sobering, but realistic, checklist of action items and processes companies should consider to mitigate the potential for— or respond to—a hedge fund or other activist attack.