Directors' Cut Archive

The CAQ’s "The Role of the Auditor in Climate-Related Information” is beneficial for audit committees’ understanding of the auditor’s charge under the PCAOB standards for assessing climate-related information: (i) relating to an audit of the financial statements and internal control over financial reporting; (ii) included in the Form 10-K outside the financial statements; and (iii) included in voluntary reporting such as a stand-alone ESG report. The resource also explains commonly encountered GHG emissions terminology and addresses auditor independence concerns in performing climate-related attestation / review engagements.

“The audit committee’s role in special investigations” from the Audit Committee Leadership Network provides insights and guidance to boards and audit committees on the many considerations involved in determining whether and how to conduct a special investigation, including the use of internal personnel and external advisors, oversight practices, communications with internal and external stakeholders, and post-investigation responsibilities.

Wachtell Lipton’s “Audit Committee Guide” provides information for audit committees and their advisors on regulatory requirements, leading practices and trends, and core committee roles and responsibilities, and practical guidance on how to best discharge them. Model exhibits include charters for NYSE and Nasdaq companies, a responsibilities checklist, a Financial Expertise and Independence Questionnaire, an auditor services pre-approval policy, a related party transactions policy, whistleblower procedures, and a committee self-assessment checklist.

For those boards that task the audit committee with primary oversight of ethics and compliance, Deloitte’s “Who’s in charge: The audit committee’s role in ethics and compliance oversight” advises them to reconsider that decision in view of the committee’s expansive responsibilities and the number and nature of risks commanding board oversight. If oversight is retained by the audit committee, the article suggests tips to facilitate and support that responsibility.

Touching on all aspects of the audit committee’s oversight, this report: “Audit Committee Blueprint” from the NACD and KPMG outlines relevant considerations, summarizes working group observations, and suggests how the audit committee should approach 10 critical areas of focus and associated action items.

IFAC’s (International Federation of Accountants) “Key Questions for Audit Committees Overseeing Sustainability-Related Disclosure” is aimed at helping audit committees effectively oversee sustainability disclosures through a series of questions across the areas of organizational roles and responsibilities; data collection; disclosure content/substance; and audit and assurance.

KPMG reported US-specific takeaways from a February/March 2023 global survey of audit committee members and chairs conducted in collaboration with the Audit Committee Institute. See this Society post for two key takeaways.

The PCAOB suggested questions for audit committees regarding audit firm qualifications, capabilities, and performance, to discuss internally and/or with the company’s auditors to facilitate the committee’s oversight responsibilities.

Although geared primarily toward audit firms, the PCAOB's "Staff Priorities for 2023 Inspections" serves as indirect guidance to audit committees and issuers in preparing for the company's annual audit.

According to The Conference Board, since 2021, women’s representation as a percentage of S&P 500 key board committee chairs has exceeded their overall board representation at 33.6% and 30.6% (committee chairs and boards, respectively). Looking at the S&P 100, women chaired 42% of Compensation Committees, 29% of Audit Committees, and 27% of Nom/Gov Committees, in 2022. 

Fenwick’s report: “Diversifying the Boardroom: What Silicon Valley-Based and Other Large Public Companies Disclosed in 2022” compares S&P 100 and the Silicon Valley (SV) 150 board racial/ethnic diversity disclosure practices and resulting demographic data.

Egon Zehnder’s “Are You Building a Cabinet or Building a Board?” explains why a board should be composed holistically rather than via a series of solo appointments of issue-expert directors or directors that bring one desired attribute or skill to the table. The article discusses the need for board cohesion, collaboration, harmony, inclusiveness, and unity to support the company’s operations, while also acknowledging the importance of different viewpoints that will lead to better decision making. Mayer Brown’s “Why the ‘Special Interest Director’ is a Bad Idea for Cyber, Climate or Otherwise“ explains the value of a board composed of director generalists who are well-equipped—via their “knowledge, wisdom, and perspective”—to soundly weigh in on a broad variety of matters and to oversee management, which is where subject matter expertise is commonly housed.

“Him For Her And Crunchbase 2022 Study Of Gender Diversity On Private Company Boards” reveals the relative dearth of gender diversity on private company boards as compared to public companies based on the firms’ analysis of heavily funded private US-based companies. The report also includes board racial/ethnic diversity data.

Out Leadership’s 2023 board diversity report reveals a spike in the adoption of LGBTQ+ inclusive board diversity policies among Nasdaq companies—largely attributed to Nasdaq’s board diversity listing rule adopted in 2021—coupled with low, but rising, representation of LGBTQ+ directors on corporate boards.

A US federal court ruled in favor of the plaintiff who challenged the constitutionality of California’s board diversity law, which mandated a minimum number of directors from underrepresented groups (defined with reference to ethnicity, race, sexual identity) on public company boards. The court held that the law violates the Equal Protection Clause and the Civil Rights Act and is not severable.

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

Kaplan & Walker’s “Training the Board” discusses the importance of board compliance & ethics training and provides high-level recommendations to companies on what such training should minimally include.

Farient’s “New Guidance from Big Investors, Proxy Advisors Shows Commitment to ESG Goals” includes a tabular summary of select investor proxy voting policies (or the absence thereof) on ESG-linked pay.

Sullivan & Cromwell’s “FSB Issues Report on Climate-Related Compensation Practices” summarizes climate-related compensation practices, trends, and implementation challenges revealed by a survey across the banking, insurance, and asset management sectors conducted by the Financial Stability Board (reported on here).

Semler Brossy’s “Executive Compensation and Stakeholder Capitalism” articulates at a high level a principled approach to determining whether and how to integrate ESG metrics into executive compensation programs based on the critical theme of alignment with shareholder value.

Skadden's "Compensation Committee Handbook" provides information for listed company compensation committees and their advisors about core committee duties and responsibilities—including instructive primers on the use of outside advisors, equity compensation, employment agreements and executive benefit plans, IRC §162(m) and other relevant tax provisions, Section 16, committee composition requirements, and director compensation—and practical guidance on how to best discharge them. The Appendix includes a sample calendar of committee meetings and responsibilities and a glossary of commonly used terms.

The evolution of the compensation committee to encompass human capital, organizational talent, and other nontraditional responsibilities is the focus of this report from Pearl Meyer and the NACD: “Compensation Committee Blueprint, which includes-—among other guidance and resources—a committee readiness checklist, a committee charter update checklist, a comparison of responsibilities assigned to traditional and expanded scope committees; and an illustrative annual meeting calendar for an expanded scope committee.

Pearl Meyer’s: “Considerations for Board Equity Compensation Amid Depressed Share Values” identifies considerations for companies and boards to avoid optical and practical challenges in properly compensating directors in the context of potential extended volatility in the stock market.

PwC’s "Serving on — and chairing — the compensation committee" provides guidance on core committee responsibilities including composition and refreshment, key functions, agenda topics and planning tips, and best practice procedures and approaches relative to executive, employee, and director compensation; executive and employee development and succession; and disclosure. The resource includes a sample committee annual calendar.

“Selecting an Independent Compensation Consultant” from the Center On Executive Compensation offers process and policy insights, recommendations, and resources to facilitate the Compensation Committee’s selection of an executive compensation consultant. The appendix includes a sample compensation consultant RFP, performance evaluation template, and reference check questionnaire. 

Following a public consultation, S&P Dow Jones reversed a prior decision to exclude companies with multi-class share structures from eligibility for the S&P Composite 1500 and its component indices.

BDO’s Board Pulse Survey revealed public company directors’ views on a range of topics, including business risks, sustainability, and executive compensation. See BDO’s release and key takeaways here.

The Wall Street Journal reported that 56 Fortune 500 companies (primarily publicly traded) have board-level Science, Technology, and Innovation (or similar) committees. See these example committee charters from Johnson & Johnson, CarMax, Nortech, Neogen, Novozymes A/S, and Imunon.

The EY Center for Board Matters maintains current benchmarking data on board and other governance-related practices for the Fortune 100, S&P 500, S&P MidCap 400, S&P SmallCap 600, and S&P 1500, in a user-friendly tabular format.

Skadden’s “Officer Exculpation Under Delaware Law—Encouraging Results in Year One” summarizes companies’ largely successful efforts to date to benefit from recent amendments to Delaware law that allow companies to protect senior officers from liability (subject to limitations) upon shareholder approval of an amendment to the corporate charter.

KPMG’s report: “2023 Private Company Board Survey Insights” reveals benchmarking data on numerous private company governance practices based on a survey of nearly 600 US private company directors (38% family-owned).  Coverage includes board and committee composition and committee structure; perceived board effectiveness and opportunities for improvement; board oversight priorities / focus; stakeholder engagement; and ESG.

Bank Director’s “2023 Compensation Survey” benchmarks numerous corporate governance and compensation practices based on a survey of nearly 300 independent directors, CEOs, human resources officers, and other executives of public, private, and mutual US banks with less than $100 billion in assets. See key takeaways here.

PwC’s “2023 Trust Survey” discusses the gaps between companies’ perceptions of consumer and employee trust in the business and “trust-builders” (things that build or drive trust with the business) and consumers’ and employees’ views. The report may inform companies’ consideration of their messaging to ensure it is not overly focused on initiatives that are not high priority or are not resonating with these key stakeholder groups. See this post.

Society public company members across sizes and industries responding to the Society / Deloitte survey: “Board oversight of talent” provided insights on their board’s oversight of new and emerging human capital-related matters. See the key takeaways and results by company size.

The percentage of US-based venture capital investor firms that requested diversity data—gender, race, and ethnicity, by position type or category—from their portfolio companies, reportedly doubled from 19% in 2018 to 38% in 2022, and is expected to rise.

Jenner & Block’s “State Legislators Target Diversity Statements in Latest Effort to Dismantle DEI Initiatives” provides an overview of legislative and regulatory developments that target the internal use or solicitation of diversity statements. While the legislation thus far has been aimed at higher education, the firm cautions companies to be on the watch for a potential expansion of such efforts and to proactively evaluate their use of such statements.

In the context of pending US Supreme Court cases that are expected to restrict race-conscious admissions policies in higher education, Proskauer’s “Cos. Should Plan To Protect DEI Before Supreme Court Ruling” advises companies to review and consider adjustments to their DE&I programs that will comport with an anticipated race-neutral approach, yet continue to support their DE&I objectives. [Editor’s note: The Court invalidated the use of affirmative action in college admissions on June 29.]

LGIM’s post: “Why we believe successful ESG engagement must be multilateral” explains the bases for its “value chain approach” to engagement on climate and other ESG-related issues to effect positive change in practices globally. See additional key takeaways here.

LGIM’s post: “Climate lobbying: turning up the heat” articulates its expectations of portfolio companies for climate-related lobbying and other political activities, which include alignment between public actions or commitments and disclosure. LGIM directs companies to ICCR’s guidance for leading climate lobbying practices.

LGIM’s post fleshes out its approach to voting on different types of climate-related proposals, including fossil fuel financing and production, Scope 3 target-setting, and anti-ESG proposals. In addition to specific factors it considers with regard to each proposal type, the post articulates other considerations applicable to its approach generally, which include vagueness, prescriptiveness, and company-specific facts and circumstances. 

State Street’s annual CEO letter identified its 2023 proxy voting and engagement priorities; noted a new policy beginning in 2024 applicable to S&P 500 companies that will look to disclosure of internal policies on director time commitments in lieu of numerical director overboarding limits; and reiterated its preference for votes against directors to promote accountability in lieu of supporting shareholder proposals, which it describes as “often too prescriptive.”

State Street’s “Guidance on Effective Board Oversight” outlines the factors it considers in evaluating board oversight effectiveness. Its concurrently posted “The Board’s Oversight of Employee Voice” discusses the importance of employee engagement as a component of the board’s oversight of human capital and provides guidance to boards on how to oversee and remain informed about employees’ perspectives and experiences with reference to relevant benchmarking data.

State Street posted updated guidance documents for portfolio companies (summarized here): Climate-Related Disclosures | Corporate Participation in the Political Process | Diversity Disclosures and Practices | Environmental Management Disclosures – Deforestation Risk in Supply Chains | Human Rights Disclosures & Practices. 

State Street’s “Guidance on Disclosure Expectations for Effective Climate Transition Plans” outlines the core disclosure criteria it expects companies that have adopted a climate transition plan to address. See additional key takeaways here.

BlackRock’s investment stewardship piece shares its observations on particular pay practices in conjunction with considerations for US company compensation committees in developing, executing, and disclosing executive compensation programs and awards. The piece includes illustrative engagement questions and case studies to explain its support or lack of support for select say-on-pay votes in 2022.

T. Rowe Price released an updated engagement policy. Changes from the 2022 policy are shown here. Its updated statement on shareholder activism remains largely unmodified from prior years but for commentary on the new universal proxy regime, which provides some comfort to corporates that T. Rowe generally won’t support narrow interest, narrowly-focused, or short-term dissident agendas.

CalSTRS’ 2023 proxy season priorities and associated director accountability implications focused on climate change and board diversity.

Neuberger Berman’s post: “Proxy Voting: Engagement Matters” explains its strategic and tactical reasons for opposing two conflicting forms of climate-related proposals filed at multiple Canadian and North American banks—one of which supports, and another that opposes, banks’ continuing investment in, and financing of, the oil and gas sector. 

Vanguard will generally look to the board to determine what actions are in the company’s and its shareholders' best interests and to act accordingly notwithstanding shareholders’ divergent views. While it will hold relevant directors accountable when it supports a majority-supported proposal if the board fails to act, Vanguard will defer to boards’ judgment on whether and how they respond to immaterial proposals that garner less than majority support. The piece stresses the importance of board engagement mechanisms; the board’s thoughtful consideration of engagement inputs; and the company’s disclosure about the process and results of such engagement.

Georgeson’s “Thematic 2023 proxy voting policy updates” summarizes changes in proxy policy provisions relating to board ESG oversight, racial/ethnic board diversity, and unequal voting rights, across several institutional investors.

LGIM’s active ownership report captured its investment stewardship activities for the 12 months ended December 31, 2022.

BlackRock's “Investment Stewardship Annual Report” captured its proxy voting-focused stewardship activities for the 12 months ended December 31, 2022.

BlackRock's “Investment Stewardship Annual Report” captured its proxy voting-focused stewardship activities for the 12 months ended December 31, 2022.

Weil’s “The Big Three & ESG: A Guide to BlackRock, State Street & Vanguard Proxy Voting Policies & Guidance on Key ESG Issues” summarizes the expectations and policy positions of the Big Three across a wide range of ESG topics.

State Street’s “Proxy Voting and Engagement Guidelines for North America” and other regions work in tandem with its “Global Proxy Voting and Engagement Principles.” Its “Global Proxy Voting and Engagement Guidelines for Environmental and Social Factors” provide additional color on its approach to engagement and voting on sustainability issues. See also its updated “Issuer and Stakeholder Engagement Guidelines.”

State Street’s annual stewardship report captured its investment stewardship activities for the 12 months ended December 31, 2022.

Significant changes in Wellington Management Global Proxy Voting Guidelines compared to 2022 are summarized here.

Vanguard's Investment Stewardship 2022 Annual Report captured its investment stewardship activities for the 12 months ended December 31, 2022.

JPMorgan Asset Management’s Global proxy voting guidelines reflect one substantive change from 2022 for North America relating to its evaluation of shareholder proposals to separate the CEO and board chair.

Substantive changes for the Americas region reflected in Goldman Sachs Asset Management’s 2023 global proxy voting guidelines are summarized here.

Wachtell Lipton's “Nominating and Corporate Governance Committee Guide” provides an overview of the key rules/regulations, exchange standards, and proxy advisor and institutional investor policies, applicable to listed company nominating & governance committees, and key topics and suggested practices that committees should consider. In addition to a comparison of NYSE and Nasdaq corporate governance standards, the appendix includes samples of the following: director resignation policy, advance notice bylaw provisions, D&O Questionnaire, and committee charter.

This “Nominating and Governance Committee Blueprint” from the NACD and Korn Ferry offers suggestions and recommendations to Nom/Gov Committees to support five increasingly scrutinized areas of oversight responsibility. In addition to a tool that facilitates actions to effect the recommendations, the guide includes samples/examples of the following: Board Member Expectations and Responsibilities; Checklist of Questions to Consider When Updating the Nominating and Governance Committee Charter; Inventory of Director Skills and Experiences Template; and Board Matrix Template.

Mayer Brown’s “Enforcement Risks Relating to Section 10b5-1 Plans” discusses the heightened enforcement activity surrounding Rule 10b5-1 plans and associated transactions as a precursor to providing guidance to companies on how to mitigate the risks of their insiders’ trading activities becoming the subject of a regulatory investigation.

While somewhat limited by the small respondent group, WTW’s survey report on political risks is noteworthy for its insights on how the war in Ukraine has impacted the perspectives and practices of companies with global operations. See the release.

Deloitte’s “The never-ending Story: CEO succession planning” suggests boards consider macro, company, and candidate-specific factors in the CEO succession planning process to facilitate the likelihood of a successful transition. The piece offers a big picture-level discussion of relevant factors and process considerations. [06/15/23] - Skadden’s “Nine Mistakes To Avoid When Transitioning CEOs” provides a high-level instructive overview of do’s and don’ts for public company boards and key members of management to successfully navigate a CEO transition.

“Private Early-Stage Startup Companies Coming Under Increased SEC Scrutiny” from Perkins Coie suggests a sound list of do’s and don’ts in the form of best and avoidable practices for private companies in response to increased scrutiny and enforcement activity from the SEC aimed at protecting private investors.

Equally beneficial for both management and the board, “How Public Company Boards Can Mitigate Supply Chain Risk” from Directors & Boards discusses multiple layers of supply chain risk; risk mitigation approaches; and the board’s oversight responsibility.

The Corporate Political Responsibility Taskforce at the University of Michigan’s Erb Institute launched a framework in the form of broad principles to assist companies in determining whether and how to engage in political activities. Each of the four principles is fleshed out with a series of corporate responsibilities and opportunities.

Mayer Brown’s “Generative Artificial Intelligence and Corporate Boards: Cautions and Considerations” explains the use of AI in the context of directors’ fiduciary duties and provides practical guidance to mitigate risks. Corporate Board Member’s “AI In The Era Of ESG: Nine Steps Boards Can Take Now” presents an AI framework for boards that includes board oversight recommendations and management action items. [06/28/23] “AI & the Board: 6 Areas that Directors Must Consider” from The DCRO Risk Governance Institute covers the gamut of issues boards should consider with regard to the company’s use of AI, with insights from seasoned experts in innovation, ethics, AI governance, cybersecurity, and other relevant areas. In addition to risks and strategic opportunities generally, the experts address, in a conversational fashion, reputational and operational risk, risk appetite, legal and regulatory compliance, alignment with company values and ethics, data management, board education/ training, cybersecurity and data privacy, and more. The IIA’s Tone at the Top provides an overview of key risks associated with the use of AI, recommendations for internal audit involvement to facilitate internal AI governance; and suggested topical questions for directors to foster an appropriate level of board oversight.

“Crisis Preparedness in the Rapidly Evolving Vulnerability Landscape: Ten Questions for Board Chairs to Ask to Prepare for Shareholder Activism, Hostile Takeovers, Short Attacks, (Anti-)ESG Pressure and Other Emergent Threats” from Kirkland & Ellis provides guidance to boards and management on how to mitigate risks associated with a wide range of potential future crises in the form of 10 multi-part questions that are aimed at spurring suggested preparedness action steps.

The Wall Street Journal’s “Companies That Embraced Social Issues Have Second Thoughts” discusses why and how many companies are reevaluating or more deliberately evaluating for the first time their public engagement on controversial social issues, in many cases having experienced or observed backlash from multiple stakeholder groups in response to speaking out.

The “Risk Committee Blueprint” from Marsh McLennan and the NACD offers relevant benchmarking data, considerations, and guidance across four key areas of board risk oversight: oversight structure, board expertise and composition, management’s reporting to the board, and annual board and committee calendars and agendas. Among other instructive tools, the guide outlines the multiple alternative approaches to allocating risk oversight responsibilities and an effective management risk reporting framework. 

Reed Smith’s “10 cybersecurity questions to ask at the next board meeting” are coupled with recommended action items designed to ensure that the board understands the company’s cybersecurity risk exposure and mitigation measures to effect adequate oversight.

Sidley’s “Corporate Officers’ Role in Corporate Governance: What Officers Need to Know” defines and describes officers’ fiduciary duties of care and loyalty and suggests action steps for companies and officers to reduce the potential for inadvertent breaches and properly support the board’s oversight responsibilities.

Stanford’s “The Evolving Battlefronts of Shareholder Activism” discusses significant changes in activism tools, types, approaches, and targets over an extended time period, and the rise in companies’ success rate, attributed in part to increased director savvy.

This Power Point presentation from Vinson & Elkins offers disclosure do’s and don’ts and a model disclosure about the company’s directors to proactively deflate activists’ attacks on the board’s composition.

Rebecca Sherratt reported on the significant Class A (non-controlled) shareholder support for proposals requesting transition to a one-share-one-vote structure. The post also notes the trends toward fewer companies going public with multi-class structures and a rise in sunset provisions for those companies that do.

The New York State Common Retirement Fund announced agreements with seven companies regarding their political contributions disclosure and the associated withdrawals of shareholder proposals.

Morningstar’s “2023 Proxy Season: What to Expect for Climate Resolutions” documents the sharp uptick in the number of climate-related shareholder proposals over the last two years coupled with the steep decline in shareholder support, attributable in large part to an increase in overly prescriptive proposals that were deemed by many asset managers to be unaligned with shareholder interests.

More than 20 venture capital firms launched the “Venture Climate Alliance” to facilitate a net zero transition among their own operations and their portfolio companies. See the release.

PwC’s “What boards should know about balancing ESG critics and key stakeholders” provides high-level guidance to boards on how to navigate the pro/anti ESG debate with due regard for the drivers of more robust disclosure and company-specific shareholder value.

According to a recent Gallup poll of more than 1,000 US adults, a plurality (and nearly half) of respondents overall, as well as 50% of those very or somewhat familiar with ESG, don’t want retirement fund managers to take ESG factors into account when making decisions about potential investments.