Credit Suisse: There are 3 Reasons Why an Activist Investor Could Be Interested in Lowe's
" Markets Insider (01/16/18) Chin, Kimberly"
News that investor D.E. Shaw has acquired a larger stake in Lowe's (LOW) has sent its shares climbing, with sources saying the move could be part of its plans to agitate for changes to boost shareholder value. Seth Sigman, an analyst at Credit Suisse, cites three reasons why the company could be attractive to activist investors. "We see additional upside to LOW, on the back of a possible activist investment," Sigman wrote in a note. First, Sigman said that the company could be seen as a cheaper alternative to its competitor, Home Depot (HD). Sigman wrote that the company's valuations are at a 10-year-low, and the valuation gap between Lowe's and Home Depot has increased due to Lowe's inconsistent results and lower comparable same-store sales from the previous year compared to its rival. Home Depot is also considered a "survivor" stock because it has survived natural disasters and competition from Amazon, elevating its valuation more. In addition, the housing market is doing well, which should benefit Lowe's, Sigman said. Along with climbing home prices and demand, home retailers have gotten a boost from hurricanes last year because the people in affected areas will be seeking to repair or rebuild their homes. Finally, Sigman also considers the gap between Lowe's and Home Depot's sales and margins "addressable," in that it could be cyclical and strategic in nature, so that changes at Lowe's could shrink that gap.
BlackRock's Fink Wants CEOs to Say How They'll Use Tax Cash
" Bloomberg (01/16/18) Willmer, Sabrina; Jones, Sarah"
BlackRock Inc. (BLK) CEO Larry Fink is petitioning heads of the world's largest companies to say how they will spend extra money from the U.S. tax overhaul. "What will you do with increased after-tax cash flow, and how will you use it to create long-term value?" Fink wrote in his annual letter to CEOs on Tuesday. Companies have a responsibility to explain to shareholders how "major legislative and regulatory changes" will affect their long-term growth strategies, Fink said. Companies including BlackRock are expected to benefit from changes in the U.S. tax plan. The world's largest asset manager will see its effective tax rate decline to 23% from around 31%. BlackRock intends to use the money potentially for share buybacks and to pay out dividends, the firm told shareholders on a Jan. 12 earnings call. The company also said it would consider possible future investment opportunities, such as more aggressively seeding or co-investing in new products, as a result of the tax reform. For years Fink has urged companies to explain their strategies for future growth. In Tuesday's letter, he said that businesses should understand how structural trends, including slow wage growth and climate change, could impact their potential to expand over time.
The Morning Risk Report: Boards Must Grapple With Social Impact
" Wall Street Journal (01/11/18) Lemos Stein, Mara"
Boards of directors received a strong message this week when Jana Partners and California State Teachers' Retirement System (Calstrs) sent a letter to Apple Inc. (AAPL) pushing it to act on the negative effect of its products on young people. That message, governance specialists say, is to be prepared to defend your brand on social responsibility. The letter is "the strongest indication to date that the magnitude of assets under management focused on social good matters cannot be ignored," wrote Ethan Klingsberg, partner at law firm Cleary Gottlieb Steen & Hamilton LLP. In their campaign, Jana and Calstrs cited research pointing to the addictive nature of electronic devices. The investors—which own a $2 billion stake in Apple—suggested the company gather its own panel of experts to review the issue, launch new tools for managing time spent on devices, and assign a "high-level executive" to head the topic and issue annual progress reports. As a technology trailblazer, they said Apple should show it cares about the impact of its products, calling it "both good business and the right thing to do." The campaign likely will help Jana gather support from major investors when those investors are seeking leverage in their "economic activist campaigns," consultants at corporate advisory CamberView Partners wrote in a note to clients. With environment, social, and governance (ESG) matters becoming a growing focus for investors, some boards may need to improve their understanding of these issues, commented George Serafeim, the Jakurski Family associate professor of business administration at Harvard Business School.
Four Key Lessons From NACD's '2018 Governance Outlook' About Managing Cyber Risks
" Security Intelligence (01/11/18) Veltsos, Christophe"
The National Association of Corporate Directors (NACD) recently published its "2018 Governance Outlook: Projections on Emerging Board Matters" report, highlighting key areas of focus for board members in the new year. The report—and the underlying NACD Public Company Governance Survey—revealed that just 49% of board directors are confident about management's ability to appropriately deal with cyber risks. Meanwhile, 58% said it was "important" or "very important" for their boards to improve oversight of risk management in 2018. The article's author details four takeaways for directors from the report. One, get engaged with strategy and risk oversight. Two, pay closer attention to cyber threats. Three, work to improve organizational culture. And, four, ask tough questions. Boards should concentrate on what matters, which includes organizational strategy and execution, the way risks are managed, and keeping a close watch on cyber risks.
Investors Opposing Virtual Shareholder Meetings Notch Wins
" Bloomberg (01/09/18) Chasan, Emily"
Railroad operator Union Pacific (UNP) will hold an in-person annual meeting this year, after its 2017 virtual-only gathering drew a shareholder rebuke and a proposal to end the practice, according to a company lawyer in a recent letter to the Securities and Exchange Commission. Investor objections to ConocoPhillips' online meeting last year also led to backpedaling from the oil producer. About 163 U.S. companies held online-only gatherings last year, up from 122 in the 2016 season, according to a review by proxy adviser Glass Lewis. Firms say digital tools cut costs and make meetings accessible to more shareholders, but investors say they are eroding their ability to hold management accountable. New York City Comptroller Scott Stringer, who oversees $191 billion of pension assets, said last April that those funds will vote against directors at companies with virtual-only meetings. The Council of Institutional Investors, which represents managers who oversee more than $3 trillion combined, launched a campaign against virtual-only meetings last year. Broadridge Financial Solutions, which processes electronic voting for companies, expects to facilitate about 250 virtual annual meetings this year. About 20% will be hybrids, where companies hold both virtual and in-person meetings.
#MeToo in the Boardroom: It Takes More Than a 'Symbolic Gesture' to Change Corporate Culture
" NBC News (01/11/18) White, Martha C."
Experts believe a proposal by former Small Business Administration head Maria Contreras-Sweet to install a woman-led board of directors at The Weinstein Co. would be misguided. Contreras-Sweet is a front-runner in the bidding to purchase Harvey Weinstein's scandal-plagued company. Experts say having women in top management roles is a more effective way to change a misogynistic corporate culture. According to Harvard University sociology professor Frank Dobbin, "We know that when companies have plenty of women in middle and upper management, they have lower levels of harassment. Ironically, the problem with focusing on board diversity is it often takes attention away from what needs to be changed." Tel Aviv University associate sociology and anthropology professor Alexandra Kalev adds, "There is power in numbers, and the more women there are in male-dominated jobs, gender stereotypes will decline, cultures will change, and harassment will decline. In the long run, an all-women board is not a solution as it maintains the separation between genders." Charles Elson, a corporate governance professor at the University of Delaware, concurs, saying that concentrating on a single gender could send the wrong message, even if well intentioned. "Eliminating anybody because of an immutable characteristic is not a healthy thing," he said. "You look for board members who have a proven track record of being alert to issues affecting the integrity of the operation." Companies that want to end harassment and entrenched sexism need zero-tolerance harassment policies and the willingness to enforce them, emphasizes Bettina Deynes, chief diversity officer at the Society for Human Resource Management. "Senior management must be demonstrative in enforcing such policies," she says. "When unacceptable behavior comes to light and it appears that high-level managers or high producers are somehow excused from equitable disciplinary action, the policy is rendered useless. Creating a sensitivity to the problem will require more than a symbolic gesture at the top."
To Make More Money, CEOs Harm Company Value
" CFO.com (01/09/18) McCann, David"
Two new research papers have established a link between the amount of a CEO's awarded equity—stock and stock options—that vests in a particular quarter, and corporate actions in that quarter that boost short-term stock prices but hurt long-term value. Such actions include revising guidance upward, reducing research and development and capital expenditures, buying back shares, and making acquisitions. According to one paper, periods of heavy vesting coincide with reduced investment in long-term projects. The paper shows that the structure of CEO compensation has a causal effect on corporate decisions. The other paper associates stock repurchases and acquisitions with higher short-term returns and lower long-term returns. For example, a one-standard-deviation increase in a CEO's vesting equity is associated with a 1.2% increase in a company's likelihood of conducting a share repurchase during the quarter. In dollar terms, the increase is $1.5 million for the average company. The papers are the first to closely examine the structure of CEO equity vesting schedules and correlate them to value-creating or value-destroying corporate activities, according to the Investor Responsibility Research Center Institute. Alex Edmans of London Business School, Vivian Fang of the University of Minnesota, and Katharina Lewellen of Dartmouth College authored the first paper, while Allen Huang of Hong Kong University of Science and Technology assisted Edmans and Fang with the second paper.
2018 Has All the Makings of a Monster Year for Dealmakers
" Business Insider (01/11/18) Morrell, Alex"
2017 was a strong year for mergers and acquisitions (M&A)—with $3.7 trillion in deals—and 2018 could be even stronger. Global economic expansion and the new U.S. tax law will drive M&A this year, according to a report by Citigroup. However, a boost in activist investing could derail transactions. "The market reaction to [M&A] deals was positive in 2017, highlighting the benefits of accelerating growth, improving technological capabilities, and broader geographic reach," according to a client report by Citigroup's corporate-finance team. "These benefits will continue to drive M&A into 2018 with several evolving themes." Some of the factors likely to drive M&A this year include economic strength around the world. "In 2018, 75% of major economies are expected to generate more than 2% GDP growth, compared to only 57% in 2011," the report notes. "Aggregate corporate earnings are expected to rise by 10.1% in 2018, up from 7.0% in 2016." Furthermore, "rapid technological change is requiring companies to think unconventionally about the types of deals that are necessary to adapt to changing demographics, consumer behavior, and technological innovation." The report notes: "More firms are exploring transactions that blur traditional sector boundaries to create shareholder value." However, a significant spike in activist investing may hinder deals. Citi says approximately 8% of U.S. M&A deals and 4% of European M&A deals are opposed by activists. "Activist interference can be highly disruptive; almost one third of deals with activist interference were not completed," Citi wrote about last year's deals.
Columbia Business School Research Sheds Light on Management's Influence on Votes Cast by Shareholders
" PRNewswire (01/10/18)"
While public companies have noticed shareholders having a bigger impact on their governance and compensation packages over the past decade, Columbia Business School research indicates that corporate management continues to have extraordinary influence on voting outcomes. "Shareholder votes are becoming increasingly important," said Fabrizio Ferri, co-author of the study, and Regina Pitaro, associate professor of accounting at Columbia Business School. "While attention has been given, almost exclusively, to the influence of proxy advisors, our paper is the first to quantify management's influence on critical votes like those on executive compensation plans." The research focused on a sample of S&P 1500 firms and found that management recommendations for any given frequency are associated with 26% more voting support for that frequency by shareholders, suggesting that management controls about one-fourth of the votes cast by shareholders. "Many people have voiced concern over the excessive influence that proxy advisors have on shareholder voting, but our research shows that similar attention should be paid to the influence that management has on voting outcomes," said Ferri. "In other words, a large number of shareholders seem to mechanically follow either management's or proxy advisors' recommendations rather than casting informed votes."
Here's Why America's Biggest Boardrooms Still Cater to Men...for Now
" The Business Journals (01/09/18) Jeffrey, Jeff"
According to a Business Journals analysis of about 3,000 publicly traded companies with at least $100 million in market capitalization, the absence of female board directors was particularly pronounced among companies with relatively limited resources compared to larger firms and those run by male CEOs and board chairmen. The analysis found that male directors outnumbered their female peers by a six-to-one ratio at the end of 2017. Furthermore, 710 boards reported no women directors at all, and another 1,034 companies had only a single woman director at year's end. In contrast, the nation's 25 largest companies by stock market value averaged one female director for every four male directors and had an average of 3.2 women directors per board at the end of 2017. The Business Journals found that as a company's size dwindles, so does its likelihood of employing an above-average ratio of women directors. According to Celia Huber, a senior partner in McKinsey & Co.'s Silicon Valley office, companies often struggle to hire women directors because men outnumber women in the workforce and are promoted at a much faster rate than women. "Women fall behind early in their careers and continue to lose ground with every step, with women of color facing the most dramatic obstacles," Huber said. Meanwhile, it is apparent that gender diversity begets gender diversity, with women accounting for 24% of directors at companies chaired by women and 27% at companies with female CEOs and board chairs.
Top 10 Topics for Directors in 2018: Board Composition
" Mondaq (01/09/18) Walsh, Daniel G.; Pico, Jonathan Joel"
Board composition is considered one of the top 10 topics for board directors in 2018, especially as studies reveal that companies with greater board diversity outperform those with less diversity. Quotas and disclosure are the two main approaches taken by governments to promote board diversity. France, Spain, Norway, and Iceland are among the countries that have legislated board quotas, requiring public companies to have at least 40% female board representation. Meanwhile, the United Kingdom and the United States require companies to disclose certain information and allow investors to evaluate the disclosure and underlying policies. In the United States, certain Securities and Exchange Commission rules require public companies to describe the nominating committee's process for identifying and evaluating director nominees, including whether and how diversity is considered, and whether the company has a diversity policy for identifying nominees, including how the policy is implemented and how the effectiveness of the policy is assessed. Experts say the focus on board diversity likely will continue, and companies would be wise to review the applicable diversity-related obligations in their jurisdictions; assess their current board composition, director search and nomination process, board refreshment practices, and diversity policies; develop a framework for identifying appropriately diverse candidates; and prioritize good disclosure and transparency with investors.
Corporate Governance: Increasing Female Participation at the Top Will Benefit All
" Executive Magazine (Beirut) (01/09/18) Zeidan Maalouly, Zeina"
Flawed corporate governance in the Middle East and North Africa (MENA) is preventing companies from reaching their economic potential. One proven way to improve corporate governance is to add more female directors to corporate boards. However, the region has traditionally fallen short in this aspect. Globally, women make up just 12% of board seats among the world's biggest companies, according to data from MSCI. But in the Middle East, fewer than 2% of board members are women, according to Bloomberg figures. Studies by international accountancy groups Deloitte and EY show that shareholders increasingly see the value of gender balance in businesses and care about the gender composition of boards. A 2016 Organization for Economic Co-operation and Development (OECD) report, citing McKinsey, showed that companies with women on executive committees outperformed peers, bringing in an average of 47% more return on equity and 55% more earnings before interest and tax. Among family-owned businesses especially, a dual-track approach to corporate governance and boosting female leadership in the MENA should be encouraged. As the MENA region starts taking corporate governance more seriously, governments, regulators, and institutions should consider adopting the OECD "Recommendation on Gender Equality" to increase the number of women on boards.
Congress Should End Corporate Governance Conflicts for Investors
" The Hill (01/08/18) Bhagat, Sanjai"
Corporate governance took on a new urgency in the aftermath of Enron's collapse and a succession of accounting scandals. It became a topic of intense media and activist institutional investor interest, and the heightened attention increased the demand for third-party corporate governance-related services by institutional investors and corporations. However, the question has been raised whether the recommendations of corporate governance and proxy advisors enhance the shareholder value of the companies they are advising, writes Sanjai Bhagat, provost professor of finance at the University of Colorado and the author of "Financial Crisis, Corporate Governance, and Bank Capital." Several published papers in scholarly finance and law journals find no relation between governance ratings sold by governance and proxy advisors and company performance. Another question raised about governance and proxy advisors is their conflict of interest with the very shareholders of companies they are advising. The Corporate Governance Reform and Transparency Act, passed by the House in late December, would address the conflict of governance and proxy advisors providing governance consulting services to companies. It requires governance and proxy advisors to disclose to the Securities and Exchange Commission any conflict of interest they have when advising institutional investors on how to vote on various proxy items. "Passage of this bill will enhance corporate governance practices in the United States to the benefit of investors, corporate employees, and other stakeholders, and our capital markets," according to Bhagat.
Opinion: Share Buybacks: Who Really Benefits?
" CFO.com (01/05/18) Schacht, Kurt; Rosov, Sviatoslav"
The issue of share buybacks by public companies is a complex one, encompassing questions of company growth and investment opportunities, interest-rate policy, macroeconomic dynamism and employment, management compensation—and even philosophical questions about a firm's purpose. Share buybacks stem from the assumption that the job of management is to maximize shareholder value, write Kurt Schacht, managing director of standards and advocacy at the CFA Institute, and Sviatoslav Rosov, an analyst in the institute's capital markets policy group. The real questions, though, are whether share buybacks are the best tool for returning capital, and whether they're sometimes used for the less-wholesome reasons of management entrenchment or enrichment. In some cases, management may feel that the company's share price is undervalued and fairly decide that the best return on investment would come from buying its own shares. The most commonly heard criticism of share buybacks is that, in practice, they are used mainly for improving reported earnings per share by reducing the number of shares outstanding. Share buybacks have become a concern for the broader economy as well. If the theoretical reason for buying back shares is a dearth of corporate investment opportunities, and share buybacks are occurring across a wide swath of publicly listed firms, then it is unclear where this liberated shareholder capital is being redeployed, according to Schacht and Rosov.
Cybersecurity Tops Boards' 2018 To-Do Lists
" CFO.com (01/08/18) McCann, David"
The latest annual list of hot topics for boards of directors from law firm Akin Gump Strauss Hauer & Feld reveals that cybersecurity ranked No. 1, given the high-profile attacks that occurred in 2017; a recommendation from the U.S. Securities and Exchange Commission (SEC) that companies designate a committee responsible for overseeing cybersecurity risk and that boards have at least one cybersecurity expert or consultant; and the May 25, 2018, implementation of the European Union's General Data Protection Regulation. Other hot topics include corporate social responsibility, corporate strategy, board composition, shareholder activism (especially in the energy industry), internal investigations, SEC regulatory relief, SEC enforcement, and trade and sanctions.
Climate Change, Diversity Will Be on Agenda for 2018
" Pensions & Investments (01/08/18) Kilroy, Meaghan"
Pensions & Investments columnist Meaghan Kilroy expects board diversity and climate change will take center stage in the 2018 proxy season. While some institutional investors have for years been pushing for greater gender diversity on corporate boards, the push has become broader lately with investors looking for diversity in expertise and personal attributes like age and ethnicity. With regards to board diversity, the onus is expected to be on small-cap and midcap companies where all-male boards are more prevalent. Only three S&P 500 companies—Centene Corp. (CNC), Dentsply Sirona Inc. (XRAY), and TransDigm Group Inc. (TDG)—have all male boards currently. "Aside from board diversity and climate change," Kilroy concludes, "other issues expected to play a prominent role this proxy season are proxy access, director elections, gender pay equity, and executive compensation."
Sustainalytics Publishes New Research Report That Examines the Prevalence of ESG Incidents
" Globe Newswire (01/08/18)"
Sustainalytics, a global provider of environment, social, and governance (ESG) and corporate governance research, ratings, and analytics, has released a thematic research report titled, Understanding ESG Incidents: Key Lessons for Investors. Based on analysis of over 29,000 incidents that took place from 2014 to 2016, the report identifies prominent incident categories, where incidents are occurring, and which industries are most involved. The key findings from Sustainalytics' report are that quality and safety and business ethics are the two most common ESG incident types, accounting for 30% of all incidents; the banking industry accounts for 19% of all incidents, more than twice the amount of the next most exposed industry (food products); adjusting for differences in industry size, the automobile industry is the most incident prone, and real estate is the least; and over 40% of incidents occur in the United States, the highest concentration of any country. "Incidents can reveal policy gaps, weak enforcement mechanisms, and even vulnerabilities in corporate strategy," said Doug Morrow, director of thematic research at Sustainalytics. "The analytical framework we develop in our report can help investors assess their exposure to ESG incidents and apply this information in their portfolio decision-making and engagement processes." Sustainalytics' research found that high-impact incidents are associated with a 6% average decline in the market cap of affected companies. Additional analysis found that a portfolio of top incident performers outpaced the global equity market by 11% from 2014 to 2017, suggesting outperformance potential of incidents analysis.
NYC Comptroller's Office Counts on Active Shareholder Engagement
" Wall Street Journal (01/08/18) Stein, Mara Lemos"
Michael Garland is assistant comptroller for corporate governance and responsible investing in the Office of the New York City Comptroller, which serves as investment adviser and custodian for five pension systems with holdings valued at $170 billion. The office is one of the most active asset owners in the United States, and Garland says the only way to protect the portfolio's value is to engage with companies for improved governance. In an interview with The Wall Street Journal, Garland discusses the value of proxy access, the lessons of Wells Fargo's (WFC) mishaps, and the limits of private ordering. The comptroller has been at the forefront of the push for proxy access in the United States, but Garland says he worries that long bylaws with all sorts of clauses included means that companies can easily change the rules of proxy access. Garland says proxy access matters because it is a fundamental right that investors have, can make boards more responsive, and sends a message to the market because it is linked to value creation. Board composition is a main focus of the New York comptroller's campaign for 2018, and Garland says the office is pushing companies to improve disclosure of gender and racial diversity so it can assess the board's skills, experience, and diversity. Garland does not believe greater requests for transparency are asking too much. When looking at corporate culture, the comptroller thinks about the tone at the top and human capital. "Wells Fargo was a failure of human capital management as much as a compliance failure," according to Garland.
Why Hong Kong Firms Need to Do Better on Environment, Social and Governance Risks Disclosure
" South China Morning Post (Hong Kong) (01/07/18) Ng, Eric"
According to a recent survey by KPMG, the quality of the first mandatory disclosure by Hong Kong listed firms on their environment, social, and governance (ESG) performance is far from sufficient to help investors make informed decisions. The survey showed a low regard for ESG risks as principal risks, unclear board engagement in ESG governance, and poor disclosure on whether and how companies identified risks that were most relevant to them. "Many have yet to demonstrate awareness of the significant ESG risks they are exposed to and the effective management of their impacts," said the survey of the annual and ESG reports of 366 firms. KPMG found only 16% had identified one or more ESG risks as principal risks in their business reviews. "The financial sector had the lowest rate of ESG risk disclosure...this is surprising given the growing environmental and social risks facing the clients [or] investees," the firm said. While 77% of companies reported on all 11 ESG aspects listed in the guidelines, only a third disclosed their methods for determining what risks mattered to their operation the most, which KPMG said could reflect the adoption of a "box-ticking approach" by some firms. According to Mary Leung Ka-yan, head of advocacy for Asia-Pacific at the CFA Institute, little policy harmonization has been seen globally, and investors and companies are often confused by the more than 300 financial disclosure policies worldwide.
Hain Celestial's Brand Overload Behind Grim Sale Prospects
" New York Post (01/05/18) Kosman, Josh"
The Hain Celestial Group (HAIN) is unable to find a buyer despite being informally for sale for about a year, sources said. The $4.2 billion market-cap company reportedly is under pressure to explore a sale from Engaged Capital, which holds seats on the board. Founder and CEO Irwin Simon built his organic-foods powerhouse to ultimately sell it, sources said, but failed to find a buyer because he expanded the company to include too many brands. No one brand is large enough to attract a suitor to pay Simon's asking price, sources said. Simon has been attempting to build certain brands to make Hain more mainstream. "Maybe [the sale plan] will involve selling some of my more lower-margin businesses," Simon said. In November, Nestle SA reportedly was in preliminary talks to purchase Hain. Nestle has told Hain it is interested in buying the business if it first sells its chicken and turkey division, a source said. "I've said this year we are looking at a strategic overview of all of our business, and some things may not fit," Simon said. "We have not made any decisions" although the chicken and turkey division is a divestiture candidate. Hain's goal, he says, is to improve sales for its most valuable brands to increase its trading multiple or to sell Hain to a big consumer foods company that is willing to pay a premium for the potential growth.
Radical Reform Needed to Shake Japan Inc Out of Its Complacency
" Financial Times (01/04/18) Lewis, Leo"
Japan's push for better corporate governance requires more radical reform, experts say. Some are calling for a critical shift in thinking which could translate into a decisive action by the financial and market regulators. This shift involves asking what feeds Japan Inc's sense of invulnerability to reform, and how it could be fixed. The answer, argue researchers, lies in ascribing greater culpability to "strategic shareholdings," the chunks of stock held by companies, banks, and securities houses for purposes other than investment that remain a powerful, complacency-fuelling presence on shareholder registers across Japan. The pervasiveness of the holdings, they argue, means that managements can in effect rely on 50% of shareholders in terms of voting rights to support management. Annual shareholder meetings are basically meaningless because management is protected by majority support. As long as that structure exists, the corporate governance code in its current form cannot do much more than it already has. One solution would be a revision of the code calling on companies to detail publicly how strategic shareholders vote on each resolution. An even more drastic approach would be an attempt to restrict the overall power of strategic shareholdings by placing limits on the size of stakes held for reasons other than pure investment. Put either of those measures in place—or even suggest the move is up for debate—and the market may start to believe that corporate governance improvement is here to stay.
Preparing for Proxy Season 2018: A Primer for General Counsel
" Law.com (01/05/18) Brown, Phil"
Companies are beginning to prepare for the 2018 proxy season and annual shareholder meetings, and general counsel should have several issues on their radar. These include the prospect of disclosing the company's CEO pay ratio, questions about how they are taking the impact of political uncertainty under the Trump administration into consideration as they make decisions, new accounting rules on revenue recognition and lease impairment, and concerns about cybersecurity and data breaches. General counsel also should be prepared to deal with activist investors, looking at how potential activists have behaved in the past at other companies, the issues that concern them, and the mechanisms used to place directors on boards. They should consistently monitor and enforce rules around filing deadlines, stock purchases, and related issues to ensure activist investors follow the proper procedures.
Investor vs Emojis: Font Group Faces War of Words With Starboard
" Financial Times (01/04/18) Fortado, Lindsay"
Starboard Value reportedly believes that Monotype (TYPE)—the owner of Times New Roman, Helvetica, and Arial—has shrouded the value of its stalwart fonts business with several unwise acquisitions. Monotype has developed one of the most valuable collections of fonts in the world, but faced with lagging revenues in certain parts of its business, the company acquired Swyft, an emoji designer, and Olapic, a content creator for brands on social media. Monotype says the moves will enable it to leverage the access it has to the biggest companies in the world through its font business to offer additional services. Starboard, however, is unconvinced. The hedge fund said in a regulatory filing that it may attempt to engage with management and the board regarding its ownership structure, board makeup, and potential mergers or spinoffs, and it might also offer recommendations for improving the business. Starboard unveiled a 6.8% stake in the font group in October. Monotype, which has a market cap of about $1 billion, said it is committed to gathering momentum in its font business, integrating Olapic, and stabilizing its printer business. While declining to comment on the Starboard stake, it said it welcomes all views that will help accomplish these objectives.
A Proxy Season Guide to 2018
" National Law Review (01/03/18) Fenn, Marisa K.; Quinn, J. Eric; Zaunbrecher, Susan B."
A new proxy season is fast approaching, and there are new and anticipated changes that may impact reporting and disclosure requirements. The Securities and Exchange Commission (SEC) now requires companies to settle securities transactions within two business days of the transaction date, rather than three; and the SEC's Division of Corporation Finance published guidance on Nov. 1, 2017, providing information and its views on shareholder proposals. On Aug. 17, 2017, the SEC clarified its position and prior guidance regarding what financial information both EGCs and non-EGCs can omit from their draft registration statements submitted confidentially; and the "pay ratio" rules became effective for fiscal years beginning on or after Jan. 1, 2017. Institutional Shareholder Services updated its Proxy Voting Guidelines Updates for 2018, with changes and modifications addressing matters such as director election on non-employee director compensation, gender pay gap shareholder proposals, and pay for performance quantitative methodology. Glass Lewis also recently published its 2018 Proxy Paper Guidelines, with changes and modifications targeting matters such as board gender diversity, dual-class share structures, and virtual shareholder meetings. Other securities law developments involve hyperlinking of exhibits, accounting and auditors, conflict minerals and resource extraction rules, and New York Stock Exchange dividend notification requirements. There are fewer new rules to deal with in 2018, but change seems to be accelerating, in part because of the efforts of shareholders and investors to fill in what they perceive as a regulatory void.
Congress Could Impose New Rules for Proxy Advisory Firms
" Compliance Week (01/03/18) Mont, Joe"
The House has passed a bill that could lead to big changes for proxy advisory firms. The Corporate Governance Reform and Transparency Act of 2017 requires proxy advisory firms to register with the Securities and Exchange Commission, disclose potential conflicts of interest and codes of ethics, and make publicly available their methodologies for formulating proxy recommendations and analyses. Rep. Sean Duffy (R-Wis.) reintroduced the bill, which was passed by the House on Dec. 20, 2017, by a 238-182 vote. "Investors ... across America expect and deserve certainty that their rights as shareholders won't be compromised by advisors issuing conflicting recommendations and executing votes," said Duffy. The bill "will foster greater accountability, transparency, responsiveness, and competition in the proxy advisory firm industry." Financial Services Committee Chairman Jeb Hensarling (R-Texas), a champion of the bill, added that given the importance of proxy advisory firms to institutional investors and the dominance of two firms in the proxy system, greater transparency is necessary to protect shareholders. ISS and Glass Lewis account for approximately 97% of the proxy advisory industry and can control a significant percentage of shareholder votes in corporate elections. The bill still must be approved by the Senate.
The Morning Risk Report: SEC Hard to Read on Shareholder Proposal Exclusions
" Wall Street Journal (01/03/18) Lemos Stein, Mara"
November guidance from the Securities and Exchange Commission (SEC) indicated the agency would be gentler on companies angling to exclude shareholder proposals from their proxy materials, but a rejection of such a request by Apple (AAPL) now suggests that expectation may have been premature. Specifically, the guidance stated boards were better equipped to determine the relevance to the company's business operations of any policy issue raised in the proposal. Thus Apple tried to exclude a proposal asking the company to establish a human rights committee at the board level to enhance its policies and practices in this area. In its request to the SEC, Apple cited discussions about the shareholder proposal with the board and its other efforts to ensure human rights are protected in its global supply chain. Nevertheless, it failed to convince the SEC the proposal was not relevant to its business. In its denial of Apple's request, the SEC even quoted the company's discussion of its board's approach to human rights policy to argue that Apple itself believes issues raised in the proposal are significant to its business operations. The response creates some uncertainty for companies, said attorneys at Cleary Gottlieb Steen & Hamilton. In a Dec. 27 client note, the firm wrote: "Under what circumstances, if any, could a company argue that ESG issues are ordinary course and permeate operational decisions…and also argue that they are not…related to substantial business operations?" The note added: "The [SEC]'s response to the Apple request indicates that the citation of board process and an involvement of the board in an assessment of a shareholder proposal will not give rise to an automatic pass with the [SEC]."
Governing by the Spirit
" BusinessWorld (India) (01/03/18) Rosling, Alan"
India has made progress in enhancing board composition in recent years, in part because of a tightened Clause 49 of the Listing Agreement and new standards under the Companies Act 2013. The leadership advisory firm Spencer Stuart reports that the Sensex constituents now have boards with an average of 10 members, with non-executive directors accounting for 68%, and female directors now accounting for 12% of board strength. In contrast, boards in the United States have boards that comprise 85% non-executive members and 22% female, while boards in the United Kingdom have boards that comprise 61% non-executive directors and 26% female. However, most larger company boards in India still attract members from similar circles, backgrounds, and age groups. On average, Sensex 30 boards have 8% of members who are non-Indian, compared with 32% of foreigners on U.K. boards. Meanwhile, of the Sensex 30, only five companies have a non-executive chair, which is an expectation in the United Kingdom to encourage the right balance and separation between management and board.
So Women Reach the Top of Companies. What Happens After That?
" Indian Express (01/03/18)"
An Indianexpress.com analysis of the NIFTY 500 maintained by Prime Database reveals that women comprised 14% of all board members for the NIFTY 500, but they accounted for only 3% of chairperson or co-chairperson positions, 4% of managing directors, 6% of directors, and 7% of executive directors. Prime Database managing director Pranav Haldea says, "When it comes to voting power, there is no difference based on position. Chairpersons and managing directors, however, do drive the boards." Although more women are entering the corporate boardroom, they are not achieving influential positions in similar numbers. According to Harpreet Kaur, deputy director at Ashoka University's Genpact Centre for Women's Leadership, "Firstly, the number of women on the table is drastically out of proportion as compared to men. It becomes difficult to rise in this paradigm. A factor that plays a very important role when you reach the top but are just a level under, is the kind of networking and sponsorship support that you have access to. Men and women experience these networks very differently. Even though male and female networks may be similar in size, their composition is very different. Often, there are more men in men's networks—and there are more men in leadership positions. So, the networks pushing them upwards are much stronger." Of the more than 11,189 members of 3,329 committees at NIFTY 500 companies, women accounted for only 11%, or 1,209 committee seats.
Hong Kong Plan for Dual-Class Listings Draws Investor Ire
" Institutional Investor (01/02/18) Cheng, Allen T."
Hong Kong Exchanges and Clearing's (HKEX) move to permit companies with dual-class shares to list in 2018 is being criticized by David Webb, an adviser to Hong Kong's top market regulator, the Securities and Futures Commission. "This policy is about racing to the bottom, attracting any [weak] company we can by dismantling shareholder rights," Webb stated in an email. "It makes us look more like the Wild East, a sunny place for shady companies. No quarterly reporting, no accountability, and no class action system, prohibiting access to legal remedies." Furthermore, "It simply isn't true that we need to reduce shareholder protections to attract 'innovative' companies," Webb said. "A recent wave of tech listings including Razer and China Literature prove otherwise." HKEX is hoping to win the business of leading Chinese technology companies operated by entrepreneurs, after losing the initial public offering of Alibaba Group Holding to the New York Stock Exchange (NYSE) in September 2014. In late 2013, Alibaba executives had considered whether to go public in Hong Kong or New York, choosing the NYSE, where there was more flexibility around management voting rights. HKEX CEO Charles Li views the exchange operator's effort to expand its listing pool as a progressive way to earn business. "The Hong Kong market has decided to take a big step forward and secure our relevancy as a premier global capital formation center," Li wrote in a Dec. 15 blog post. "Following an extensive market consultation, we have reached a clear consensus that Hong Kong must broaden its listing regime and proactively embrace the new economy." Despite the controversy, some observers support HKEX's decision to accept dual-class listings. PricewaterhouseCoopers, for example, stated on Jan. 2 that the new policy could help turn Hong Kong into the world's biggest initial public offering (IPO) market this year, potentially raising as much as HK$250 billion ($32 billion). Hong Kong ranked No. 2 globally in IPO volume in 2017, behind the NYSE, according to Dealogic.
Activists' Guide to 2018: The Best Defense Is a Good Offense
" New York Times (01/02/18) Laughlin, Lauren Silva"
Activist investors agitating for new strategies or management shakeups are not going anywhere. In fact, the proxy fight this year at Procter & Gamble (PG) led by Nelson Peltz—whose Trian Partners gained a board seat after a 10-month campaign—will encourage others to take up similar action. Resistance is not futile, but it needs to be more carefully considered, and companies need to soften their pride. From General Motors (GM) to Whole Foods (WFM), no company was off limits in 2017. Activists waged campaigns at more large companies than the previous year, a trend that can be expected to continue in 2018. For companies, the best defense is a good offense. GM's Mary Barra fended off David Einhorn's attempt to split the stock, having already begun to address the stock's discount by selling off the automaker's European brands before Einhorn launched his campaign, and by carefully outlining the company's long-term strategy. Automatic Data Processing (ADP) fended off Bill Ackman by citing its efforts to transform its technology and the hedge-fund manager's comparatively poor performance. For activists, good instincts and finely honed demands hold the key to success. Peltz made clear he was not trying to break up P&G and sought a single board seat to push for new management and greater emphasis on new products and M&A. The 10-month defense by CEO David Taylor seemed disproportionate to Peltz's request and undermined Taylor's credibility. Look for more executives to behave like General Electric's John Flannery, who made Peltz an ally by giving Trian a board seat without a proxy fight.
Shareholder Activism in 2018: Pumping Up the Volume
" IR Magazine (01/02/18) Goldfarb, Bruce"
Activist investors are likely to be more aggressive in 2018, writes Bruce Goldfarb, president and CEO of Okapi Partners, a proxy solicitation and investor response firm based in New York. Activists are emboldened by past successes, empowered by new technologies, and encouraged to drive valuations higher in an already lofty equity market. The activists that settled for board seats and strategic reviews in the past are now likely to push for more dramatic changes, such as replacing the CEO or management, while new activists may demand more drastic action to enhance shareholder value, according to Goldfarb. Trian's contest against Procter & Gamble (PG) is likely a foreshadowing of more expensive retail-oriented campaigns to come. Activists will likely be more focused on operational "fixes" intended to make companies more efficient, more profitable, faster growing, and thus more valuable, rather than on looking to put entire companies up for sale. Investors like BlackRock (BLK), Vanguard, and State Street (STT) have become increasingly vocal in supporting environmental, social, and corporate governance-related (ESG) proxy proposals, so there will be more momentum behind efforts to hold public company boards and management teams accountable to higher ESG standards. Also, more companies will get better at honing their messages to shareholders, and will work to solidify their relationship with investors by holding more regular conversations about corporate strategy, stock performance, executive compensation, and ESG issues, adds Goldfarb.
The Morning Risk Report: Ruling Points to More Attention for Director Compensation
" Wall Street Journal (01/02/18) DiPietro, Ben"
A December ruling by the Delaware Supreme Court could affect companies where the board sets pay for directors. The decision reversed a lower-court ruling that upheld equity awards given to board members at Investors Bancorp (ISBC). The ruling means boards no longer will be able to depend on the business judgment rule protection to justify such equity awards; instead, board compensation will be judged by the more narrow "entire fairness" standard, explained Steven M. Haas, a partner at law firm Hunton & Williams. "This ruling will likely cause companies to rethink the terms of future equity plans," Haas wrote in a client note. "For boards making discretionary director compensation decisions, they should work closely with outside advisors to help establish the fairness of the compensation." Previously, courts developed a test that when board directors paid themselves equity under a stockholder-approved plan, the compensation decision was protected by the business judgment rule that said as long as a plan has meaningful limits the courts would take a deferential approach, according to Haas. That left open the question of what constitutes a meaningful limit. "Now, boards must demonstrate a fairness of the compensation," if shareholders did not approve the grants or a self-executing plan, he said. Haas expects companies to change the terms of their equity-compensation plans, but not until the life cycle of their current compensation plans end. He does not anticipate a flood of lawsuits challenging director compensation, "as most director plans are reasonable" and the costs to bring such actions may not be worth the return.
Breakingviews - Icahn Wins SandRidge Battle but War Isn't Over
" Reuters (12/29/17) Laughlin, Lauren Silva"
SandRidge Energy (SD) has cancelled its $746 million bid for competitor Bonanza Creek Energy (BCEI), marking a win for Carl Icahn and other shareholders. However, the oil driller's poison pill—which prevents Icahn from raising his stake and makes a takeover more difficult—remains in place. SandRidge dropped its bid just six weeks after announcing the agreed offer for Bonanza, highlighting the degree of shareholder opposition. Fir Tree Partners—the company's third-largest shareholder—was the first to oppose the deal, and Icahn joined soon after. Guggenheim Partners Investment Management later backed both investors, making all three top shareholders outspoken dissidents. However, the shareholders still have challenges ahead. After Icahn acquired his stake, the company installed a poison pill that effectively dilutes any shareholder if they take significant holdings. These types of rights plans can repel potential bidders as well. SandRidge stock trades at just 2.4 times estimated EBITDA for 2018, according to Eikon, less than half the multiples of most competitors. That could make the company a prime candidate for a takeover. Shareholders will be able to vote on the rights plan at the next annual meeting, but the date has not been set yet and last year's meeting did not occur until June. That leaves months for SandRidge's management to spurn interested bidders. Icahn should keep up the pressure and see this battle through to the end.
How Shareholders Can Rein in Obscene Pay Packages
" Financial Times (12/29/17) Webb, Merryn Somerset"
The chairman of Persimmon recently resigned amid investor backlash after approving a remuneration package to pay the CEO a whopping £107 million by the middle of next year. While he should have insisted on a cap on the bonus structure, there is a problem with blaming just the board and executive greed for this type of issue, writes Merryn Somerset Webb, the Editor-in-Chief of MoneyWeek. We also must ask how shareholders let such deals go through, she says. To get to the answer, we need to examine the ownership structure of shares in listed companies today. Today, the number of listed shares in the U.K. held directly by individuals has dwindled to 10%: most people hold what equities they have via the fund management business. And even those who do hold individual shares do so via a platform of some kind. This is all very convenient, but it also has several unfortunate side effects, Webb writes. The first is a lack of connection between the final beneficial investor and the corporate world. The second is the one we see in action with ridiculous pay policies. It is that fund managers do not necessarily see things as small shareholders might, writes Webb. It might be better to bypass fund managers in the decision-making process, she says. "Forty years ago, the beneficial owners of shares were the ones voting at AGMs. Why not change the structure of the investing world and make that happen again?"
More Investors Consider Nonfinancial Factors in Decisions
" Japan Times (01/01/18) Nagata, Kazuaki"
Environment, social, and governance (ESG) investment finally began picking up steam in Japan during 2017. Hiromichi Mizuno, chief investment officer at the Government Pension Investment Fund (GPIF), wants to take it to the next level in the new year so that Japan can catch up with other nations and potentially pull ahead of them. To accomplish that, he emphasizes that the domestic corporate sector will need to ramp up its efforts to share more data on how they are contributing to the environment and social sustainability. Mizuno, a master of ESG initiatives in Japan, remarks, "Two or three years ago, every time GPIF mentioned ESG, we really didn't get very positive reactions from Japanese corporate leaders. But now, I think we're getting much more supportive reactions. I think they started realizing that our push for ESG helps them communicate with foreign investors."
Africa: Corporate Boardrooms - Where Are the Women?
" allAfrica.com (12/28/17) Oyaro, Kwamboka"
As of the 2015 study by the African Development Bank titled "Where Are the Women? Inclusive Boardrooms in Africa's Top-Listed Companies," women at the top 307 African companies comprised just 14% of total board membership, or one woman out of every seven board members. One-third of the boards had no women at all, the study found. African nations with the highest percentage of women board members are Kenya (19.8%), Ghana (17.7%), South Africa (17.4%), Botswana (16.9%), and Zambia (16.9%). Companies with a high percentage of women on the board include the Kenya-based East African Breweries Ltd. (45.5% women), followed by South Africa's Impala Platinum Holdings Ltd. (38.5%) and Woolworths Holdings Ltd. (30.8%). The African nations with the lowest percentage of women on boards include Côte d'Ivoire (5.1%), Morocco (5.9%), Tunisia (7.9%), and Egypt (8.2%). "The earnings before interest and taxes margin of those with at least a quarter share of women on their boards was on average 20% higher than the industry average," notes "Women Matter Africa," a report by U.S.-based consulting firm McKinsey & Co. The African continent does rank first in female board membership among emerging regions. Africa, at 14.4%, places substantially higher than Asia-Pacific at 9.8%, Latin America at 5.6%, and the Middle East at 1%. McKinsey & Co. suggests four goals including making gender diversity a top board and CEO priority; making a compelling case for gender diversity; confronting limiting attitudes toward women in the workplace; and implementing a fact-based gender diversity strategy—using metrics and data to understand women's contributions within a company.
Working Women in Japan Aim High, but Bosses Aren't Listening
" Nikkei Asian Review (12/28/17) Moriyasu, Ken"
Many Japanese female professionals aspire to corporate board service, according to a survey by professional recruitment firm Hays. However, too few of their male bosses provide support for such advancement. According to the Hays survey of five Asian economies, 42% of Japanese female professionals said, "My line manager does not know my career ambition"—more than four times higher than the share who said the same in Hong Kong, and notably higher than in China, Malaysia, and Singapore. When asked in the Hays survey if they would like to reach the director level, 13% of Japanese female professionals said they hoped to do so within three years, 30% set a seven-year time frame, and 25% said their target was 10 years.
Governance Is the Next Target for Abenomics
" Wall Street Journal (12/28/17) Trivedi, Anjani"
Corporate scandals and persistently weak inflation in Japan have renewed pressure to improve the way the country's companies are managed. Prime Minister Shinzo Abe's economic-revival program—which has helped bolster the economy and make Japan's stock market vastly more competitive—has affected corporate governance as well. Shareholder returns in the form of buybacks and dividends are at record highs, while independent directors now make up at least one-third of the board at 30% of listed Japanese companies. The networks of cross-shareholdings that limited minority shareholders' rights in the past have declined as a percentage of companies' market capitalizations for eight straight years, and are now down to 15%. Some activist investors have driven change at large Japanese companies in 2017. However, while scandals at companies from Nissan to Toray Industries represent progress and awareness, by international standards, companies were not held to such a high standard in the first place. Now, there is a growing belief that stronger corporate governance could help cure low inflation and wage growth, two of the biggest drags on the Japanese economy. The idea is that strengthening corporate boards will make executives prioritize profits, productivity, and pay. Hopes are pinned on a revised corporate governance code that is expected this summer, which will be an indicator of Abe's intentions. Japan requires more than stimulus from the central bank and the government to keep the economy growing. If better governance can improve wages and inflation, it could make Japan's recovery more sustainable.
Icahn's Bet on Copper Miner Is Paying Off After Two-Year Wait
" Bloomberg (12/28/17) Kochkodin, Brandon"
Freeport-McMoRan Inc.'s (FCX) stock has skyrocketed more than 30% in the past month on top of a record rally in copper prices. Carl Icahn unveiled an 8.5% stake in stock and options in Freeport in the third quarter of 2015, and called for a review of the miner's "capital expenditures, executive compensation practices, and capital structure," as well as an end to "high-cost production operations." A filing at the time showed Icahn paid roughly $14 a share, spending approximately $1.23 billion. Freeport closed Wednesday at $18.69, putting the return on Icahn's initial investment on par with the 35% return of the S&P 500 Index over the same period. On the same day that Icahn reported his stake, Freeport announced that it would lower capital expenditures, curb copper sales, and slash production by 20%. Shares jumped 28% that day. In October 2015, Freeport agreed to appoint two of Icahn's representatives as directors, after reducing the board from 16 to nine members. Shares increased as much as 14% on the news. Icahn lowered his stake in 2016 and 2017 as copper prices languished and Freeport negotiated the sale of the massive Grasberg copper and gold mine in Indonesia. Since Icahn first bought into Freeport, proceeds from divesting oil and gas units have helped the company pay down some of its debt and reduce its leverage ratio by more than half. With copper's rally, the value of Icahn's remaining 5.3% stake has increased by $369 million this month.
Cevian Says Brexit Offers Rich Pickings
" Financial Times (12/27/17) Milne, Richard"
Swedish investor Cevian Capital says Brexit is making the U.K. more appealing to investors by lowering valuations. The fund is off a fresh success from selling its 8% stake in truckmaker Volvo Group to Chinese company Zhejiang Geely for €3.25 billion, the sector's biggest-ever exit. The fund's co-founder, Christer Gardell, says the firm would be aiming to reinvest the €2 billion in profits it made either in new companies in northern Europe or in existing holdings that include companies such as steelmaker ThyssenKrupp, engineering firm ABB, and U.K. insurer RSA. "We really like the U.K. market. We like the corporate governance, the rational behavior of corporate boards. For us, Brexit is probably more a positive than a negative. Investors tend to exaggerate the threat," he said. The Volvo Group stake sale is a vindication of the long-term strategy of Cevian, which typically owns stakes of 5-20% for five to seven years. The investor owned Volvo Group for 11 years and made much of its money in the past 18 months due to a turnaround launched by a new CEO. Gardell said of the deal: "It's an important transaction for our business. It shows the value of a large minority position as well. It's good to show we can do a transaction like this after so many years." Cevian predicts that its return from its Volvo Group investment is more than double the market return over the past 11 years.
Role of Conglomerates' Outside Directors Minimal: Report
" Yonhap News (12/27/17)"
South Korea's Fair Trade Commission issued a report on Dec. 27 indicating that outside directors at the country's major conglomerates play an insignificant role in corporate decisions, as their agenda disapproval rate is very low. Of the 4,361 motions forwarded for approval by the board of 169 listed companies—which belong to 26 conglomerates—in the one-year period from April 2016, only 17 were rejected, altered, or pigeonholed, amounting to just 0.39% of the total, according to the report. Only four agenda items were voted down. Given the low disapproval rate, independent directors at family-controlled conglomerates are thought to just rubber-stamp key decisions to serve the interests of the largest shareholders or management over small investors. Meanwhile, during the period covered by the report, the percentage of outside directors at the companies rose from 50.2% to 50.6%.
Growing Activist Focus on Europe Adds Urgency to Avoid Campaigns
" Bloomberg (11/27/17) Pham, Lisa; Baigorri, Manuel"
After a big year for activist investors agitating European companies, experts say firms are becoming more anxious to address shareholder concerns before they escalate into public campaigns. "Activism has pushed boards to look hard at every source of shareholder value creation and get in front of any active investor campaign," according to Hernan Cristerna, global co-head of M&A at JPMorgan Chase & Co. in London. Activists spent $45 billion by the third quarter this year, almost double the amount as all of last year, according to Lazard Ltd. European companies gathered more than 20% of this, compared to about 10% in previous years, the adviser said. According to Cristerna, companies could announce more buybacks, special dividends, and asset sales next year, even before activists come calling. Addressing another major long-term concern, the U.K.'s biggest companies have recently seen fewer fights with investors over executive pay after responding to demands to curb excess, according to the Investment Association. Europe also has many family-controlled businesses that have capital structures permitting certain shareholders to get more votes than others. With benchmark-index providers S&P Dow Jones Indices and FTSE Russell saying they will block multi-class shares from some of their indexes, companies are also approaching shareholders about the topic. Sectors expected to see activist pressure in 2018 include consumer goods, technology, energy, and chemicals.
Why Activists are Cheerleaders for Corporate Social Responsibility
" Financial Times (12/26/17) Fortado, Lindsay"
Activist hedge funds are increasingly paying attention to environmental, social, and governance (ESG) issues. Funds like Trian Partners, Blue Harbour, Red Mountain Capital, and ValueAct are all emphasizing ESG as they seek to improve company performance and as their own investors call for managers to demonstrate their dedication to ESG concerns. "It is hugely important for us, and we put it on the same scale as other things we look at—a company's cash flow, its market share, its management," said Cliff Robbins, the founder of Blue Harbour. "Anything we can do to reduce risk is smart." These funds say that improvements in common ESG concerns—such as board diversity, employee retention, or environmental policies—can drive earnings and mitigate the risks of expensive litigation or run-ins with regulators. Brian Schorr, chief legal counsel at Trian, said the company did thorough due diligence checks on DuPont's environmental policies before taking a stake in order to assess "what their existing litigation and environmental exposure was." The issues for every company are different, said Robbins. In Blue Harbour's recent investment in WebMD, the priorities were ensuring the company's data privacy and security were strong, and advancing more women in the company. Most of the website's users were female, he said, but women were still in the minority as employees. Meanwhile, 60% of investors say they plan to increase their allocations to responsible investments over the next three years, according to a survey by Create-Research. "I'd say we're at a tipping point where there's a lot more interest and concern," said Robbins.
Japan Inc. Learning to Live With Activist Shareholders
" Nikkei Asian Review (12/25/17) Yuasa, Kensuke"
Japanese companies are facing rising pressure from activist investors. The growing presence of aggressive shareholders was highlighted by the takeover of Kuroda Electric by Asian private equity firm MBK Partners completed on Dec. 15, following pressure on Kuroda from a group led by Yoshiaki Murakami. Other assertive shareholders active in Japan include Elliot Management, which has upped its bid price for Hitachi Kokusai Electric, and Oasis Management, which is calling Alps Electric to raise its acquisition price for Alpine Electronics. Japanese investment firm Strategic Capital has also made shareholder proposals, including dividend increases, at more than one shareholder meetings this year. Yoshifumi Aratake of Mitsubishi UFJ Morgan Stanley Securities anticipates that amid increased activity by activist investors, the number of shareholder proposals at next year's annual meetings will surpass even this year's record level. In the 2000s when the Japanese became more aware of the presence of activist investors, such funds often made drastic demands, such as a total management overhaul, sharply antagonizing companies and other shareholders. Today's activist investors, however, "make soft proposals like enhancing shareholder returns," said Aratake. A request to raise a takeover bid price can also lead to bigger benefits for small shareholders. The revised stewardship code, which emphasizes the fiduciary responsibility of asset managers, makes it hard for institutional investors to disregard requests by activist investors if the requests are rational. "True, some assertive shareholders attach a greater importance to short-term capital gain than to improvement in corporate value," noted Shingo Ide, chief financial engineer of NLI Research Institute. Companies and investors need to foster the ability to work out the true intentions of activists behind their assertions.
Energy CEOs Facing Squeeze as Proxy Giant Roots out the Overpaid
" Gulf Times (Qatar) (12/24/17)"
Institutional Shareholder Services Inc. (ISS) next year will add new metrics to a screening process it uses to identify companies that overpay executives who under-deliver for investors, a move that could heap more pressure on U.S. drillers. Instead of just focusing on total shareholder returns, companies now will be evaluated on their return on invested capital as well as their assets and earnings growth. The move intensifies investor-led efforts to force financial discipline on an industry that overspent on production growth before the 2014 oil rout, and now is struggling to provide meaningful investor returns. The top 15 oil companies paid their executives $2.8 billion in the past decade, while delivering less of a return to shareholders than other industries. Their average annual return over the period was 2.7%, compared with 8.7% for companies on the S&P 500. The gap has continued this year with the S&P 500 Energy Index underperforming the main gauge by 24%, even as oil prices climbed. In response to shareholder demands, various companies have already announced changes to their compensation models. EQT Corp. (EQT), which is in the midst of a $6.7 billion takeover of Rice Energy Inc. (RICE), adjusted the way it will base executive pay to focus on returns, not just growth. Range Resources Corp. (RRC) also listened to shareholder warnings and added the drilling rate of return to compensation metrics, meaning part of how much executives is paid will be linked to how many molecules actually flow out of wells compared with how much money was spent on it.
Corporate Year in Review 2017
" Financial Times (12/22/17) Fortado, Lindsay"
Shareholder activism this year was characterized by unusual campaigns and U.S. investors going to Europe in search of undervalued companies. Nelson Peltz's fight at Procter & Gamble (PG) was only settled recently, with the company granting him a board seat after two months of deliberation after the shareholder vote. Meanwhile, Sir Christopher Hohn's TCI fund was arguably the most high-profile in Europe this year. The fund led one of the more unusual campaigns to keep the London Stock Exchange's departing CEO, Xavier Rolet, rather than the other way around. Another unusual moment was the oddly threatening letter from former Arconic (ARNC) CEO Klaus Kleinfeld to Elliott Management founder Paul Singer, after Kleinfeld appeared to be winning in a battle over the company. After the ill-advised letter emerged, Kleinfeld resigned, and Arconic settled a month later with an offer of board representation. Elliott was very active in 2017, from engaging Akzo Nobel to BHP Billiton (BBL). The fund waged eight campaigns in the first half of the year—twice as many as any other fund—and spent nearly twice as much on stakes as the second-most active fund, according to data compiled by investment bank Lazard. Other U.S. investors also had a presence in Europe, including Dan Loeb's Third Point, Keith Meister's Corvex, and Scott Ferguson's Sachem Head. U.S. activists spent $9.9 billion on new campaigns on the continent, up from $2 billion in 2016. Activists spent big globally this year: by the end of the third quarter, activist positions totaled $45 billion for the year—almost twice the $24.7 billion invested in all of 2016. With activists' track record this year—the funds are up roughly 12% for the year, according to Prequin data—and with growing behind-the-scenes support from passive equity funds, that success is unlikely to diminish anytime soon.
Oil Shareholders Try Capping Sorry Governance Well
" Reuters (12/21/17) Laughlin, Lauren Silva"
Shareholders are pushing the oil industry to improve its governance, although they may need to step up their efforts. Carl Icahn has gathered investor support against SandRidge Energy's (SD) poison pill after criticism of its $746 million offer for Bonanza Creek (BCEI), Hess (HES) faces a second battle with Elliott Management, and Exxon Mobil (XOM) is slowly beginning to address shareholders' concerns. Investor demands are not outlandish, focused on issues such as problematic compensation structures. The reaction against the poison pill SandRidge installed last month is hardly surprising, but the company used a lower-than-normal trigger point and included a clause preventing shareholders from working together. The company later amended the provision to say shareholders were allowed to meet, but only after Icahn attacked the company. Exxon, meanwhile, took months to respond to a shareholder vote demanding more disclosure on climate change risks. It is also only now making it easier for owners to meet with the board. Finally, Hess's poor stock performance has driven Elliott Management to prepare another campaign, even though two of its nominees from the 2013 fight are still on the board. Unfortunately, such pressure may only bring energy companies' corporate governance up to date with current basic practice. That means many in the sector are fighting past battles rather than ensuring their governance is prepared for the uncertain future climate change will bring. That requires ensuring everything from board composition to executive pay to transparency about asset risks is in line, argues Cornerstone Capital. The recent pushback by shareholders is good, but they need to escalate it further.
Pushy Investors on Board for 2018 Pacific Cruise
" Reuters (12/21/17) Webb, Quentin"
The Asia-Pacific region is due for greater shareholder activism in 2018, with a market that offers attractive targets, shareholder-friendly rules, and potentially supportive fund managers. Setting the stage for greater activity includes a recent campaign by Elliott Management at miner BHP and a battle between a local billionaire and Australian department-store chain Myer. There are several reasons to suspect shareholder activism will increase in the region. First, there are good candidates, primarily cheap-looking stocks that could streamline their portfolios and return cash to shareholders. Credit Suisse strategist Hasan Tevfik has singled out AMP, Caltex, CSR, Fletcher Building, Lendlease, and News Corp, among others. Second, shareholders have reasonable clout. The battle between Australian billionaire Solomon Lew and $500 million Myer last month highlights a particularly tough "two strikes" rule on pay. More than 29% of votes cast opposed the company's remuneration report at the annual meeting last month. If next year's report is also opposed by at least 25% of shareholders, Myer's directors could be at risk under Australia's two-strikes rule. For that to happen, a simple majority of votes cast would need to support a "board spill" motion, which would force all directors to stand for re-election at a follow-on meeting held within 90 days. Finally, a strong campaign from afar could find local backing. Australia's directors often serve on multiple boards, while the country also has a financial press that can amplify attacks on bad practices. In addition, stock ownership is dominated by institutional money, particularly local pension funds, which should be open to value-creating proposals. All of that gives activists a reason to move in.
How Boards Can Reduce Corporate Misbehavior
" Harvard Business Review (12/21/17) Bagley, Constance E.; Cova, Bruno; Augsburger, Lee D."
Constance E. Bagley, a senior research fellow at Yale School of Management and the CEO of the Bagley Strategic Consulting Group LLC; Bruno Cova, chairman of the Milan office of international law firm Paul Hastings; and Lee D. Augsburger, senior vice president and chief ethics and compliance officer for Prudential Financial Inc., have created a comprehensive 10-step program to help boards reduce the risks of illegal behavior, reinforce ethical conduct as a core value, and enhance the company's reputation in the eyes of regulators and stakeholders as a good corporate citizen. These 10 steps are: create an ethics committee of the board; appoint a high-ranking chief ethics and compliance officer to take day-to-day operational responsibility for the company's global ethics and compliance program; establish and post online ethical and compliance standards and procedures to prevent, detect, and remedy illegal or unethical conduct; promote quality and safety with clear escalation policies; develop measurable integrity performance indicators, reward good behavior, and do not create misaligned incentives; use due care in hiring C-suite executives; mandate interactive training to communicate the ethical and compliance standards to all employees and members of the board; make sure employees are not retaliated against for speaking up; apply the rules evenly across the entire organization; and be prepared for compliance failures.
Hitachi Kokusai Deal Is a Victory for the Hedge Fund Manager That Lost
" Nikkei Asian Review (12/21/17) Oku, Takashi"
Kohlberg Kravis Roberts (KKR) has finally succeeded in buying a substantial stake in Hitachi Kokusai Electric, ending a monthslong takeover fight with Elliott Management—but it may be the hedge fund that emerges as the ultimate winner. Elliott built a stake in Hitachi Kokusai to just under 8.59%, which it used to pressure KKR into boosting its offer price twice. Ultimately, however, Elliott agreed to sell its stake in Hitachi Kokusai to KKR at an offer price of 3,132 yen per share, which is lower than the stock's last traded price of 3,155 yen. Elliott pocketed a 14% profit from the sale, but the real motive behind Elliott's move appeared to be a battle with Hitachi Kokusai's parent Hitachi over an Italian company. Elliott held a meeting with Hitachi the day before the offer deadline of Dec. 8, asking to settle a fight in Italy, and in return, Elliott would sell its Hitachi Kokusai shares to KKR, according to sources. In 2015, Hitachi purchased a 40% interest in Ansaldo STS from Italian group Finmeccanica. Hitachi then raised its stake to 51% by buying in the market, with the ultimate goal of taking over Ansaldo completely. But Elliott stepped in and accused Hitachi and Finmeccanica of colluding to artificially depress the purchase price of Ansaldo. The Italian Securities Exchange Commission ruled that Hitachi and Finmeccanica had colluded and ordered Hitachi to increase its purchase price. But Hitachi filed a countersuit. The case has been brought to the European Court of Justice and a decision is expected to take years. Elliott apparently agreed to sell its stake in Hitachi Kokusai to KKR in return for Hitachi's cooperation in the Ansaldo STS case. This appears to be the real reason behind Elliott's relatively subdued response to KKR's offer for Hitachi Kokusai: Its ultimate goal was to win Hitachi over in the Italian case.
Breakingviews - Activists Are at the Back Door of Fortress Luxury
" Reuters (12/21/17) Ryan, Carol"
High-end fashion brands are often under family control—allowing them to stockpile cash and live with poor governance—but assertive investors are becoming more willing to initiate fights, while some companies are more vulnerable than they seem. Investors in the U.S. have already agitated jeweler Tiffany & Co. (TIF) and handbag purveyor Kate Spade, while in Europe, Albert Frere's Groupe Bruxelles Lambert recently became Burberry's top shareholder with a 6% stake. Burberry is one of the few European players without a dominant shareholder, making activism a more feasible option. The luxury sector could certainly benefit from activist scrutiny: Richemont, for one, is sitting on nearly 6 billion euros of cash. And dealmaking has not always been disciplined. The high price paid by LVMH for Bulgari, for instance, means that returns on the investment still are not reaching the group's cost of capital six years later, according to HSBC. Meanwhile, governance issues abound, with the chairman and CEO roles still combined at several luxury groups. One tool that could give activists a way in at some of these companies is an Italian law that awards minority shareholders the right to appoint directors. Prada, too, is exposed despite its Hong Kong listing and an 80% family holding. There are plenty complaints shareholders could make: for example, the 12.4 million euros paid last year to each of Prada's co-CEOs amounted to 9% of net income. Activists have fewer options at French giants LVMH and Kering, for example, where outsized voting rights can shut out dissidents. Still, all luxury brands are worried about their reputations, so a high-profile activist campaign could affect even powerful families.
UBS Sees Good Year for Swiss IPOs in 2018
" Reuters (12/20/17) Gruber, Angelika"
Activist shareholders will continue to have an impact across Europe next year, according to UBS. In particular, activist shareholders will make a mark in Switzerland, says Philipp Beck, UBS investment banking's M&A head for Germany, Austria, and Switzerland. Nestle, Clariant, Credit Suisse, and GAM Holding are among the Swiss groups that have faced shareholder activism of late. "The threshold to launch a new campaign sinks with every success that activists are able to book in Europe," according to Beck. "They jump on undervalued companies when there are windows to correct the undervaluation and the chance to win a majority vote at shareholder meetings." Switzerland's biggest bank also expects 2018 to be a good year for Swiss initial public offerings. A favorable market environment amid low interest rates and solid investor demand is poised to attract listings, says Martin Kesselring, head of UBS's corporate client solutions business.
Dealing With Activist Investors Hinges on Understanding What Kind They Are
" Financial Executives International Daily (12/20/17) Berkman, Olivia"
Long-term activist investors act in a company's best interest and can provide a much-needed check on management, according to industry observers. However, activists who are long-term shareholders are the minority of activists today, said David Katz, partner, Wachtell, Lipton, Rosen & Katz at the recent IIEF 2017 Global Shareholder Activism Conference. He noted that there is a big difference between established firms and so-called "alumni" or "ankle-bitters," which try to make a lot of noise with a focus on raising more capital. Smaller companies are more vulnerable to these types of activists because they may not have access to general counsel or the advisors that larger companies have. What matters to these types of activists is winning a proxy fight, which is much easier to do at a smaller company, added Katz. Jeffrey Sonnenfeld, assistant dean, Yale School of Management, made the case that governance activism has been distorted and a lack of public companies has pushed activists to target healthy corporations like PepsiCo (PEP) and ADP (ADP). J. B. Heaton III, founder of Conjecture and J.B. Heaton, said there are certainly activist investors in it for the short term, but there are even more poorly governed companies that could benefit from a long-term activist investor.
Stocks Soar, Mergers Slump, Activist Investors Wield Power
" Wall Street Journal (12/19/17) Simons, John"
This year saw stock indexes break multiple records as activist investors agitated CEOs—further eroding their power—and as corporate mergers slowed. Influential outsiders like Nelson Peltz are challenging the identity of a CEO as chief decision maker and lead strategist. Peltz, founding partner of Trian Fund Management, fought for a seat on the board of Procter & Gamble Co. (PG), the largest company to ever face a proxy fight. He accused management of running a company burdened by excessive costs and bureaucracy and moving too slowly to improve sales and profit. Meanwhile, Elliott Management Corp. waged a battle at Arconic Inc. (ARNC), which awarded the hedge fund several board seats in May. Investors are even angling to install their own handpicked leaders. Railroad veteran Hunter Harrison worked with investor Paul Hilal this year in an effort to overhaul management at railroad CSX Corp. (CSX), and Harrison took over as CEO. Harrison, 73 years old, died Saturday, raising questions about the move to hire him. In Europe, Dutch paint company Akzo Nobel NV and BHP Billiton PLC (BBL) faced battles with dissident shareholders. A shareholder rebellion also scuttled a $15 billion merger between Swiss chemicals company Clariant AG and U.S.-based Huntsman Corp. (HUN). Daniel Loeb, founder of Third Point LLC, became one of Nestlé SA's top shareholders in 2017 and pressured the Swiss food company's leadership to make strategic changes. The company began adjusting its portfolio, boosting leverage to return capital to shareholders and setting a formal profit margin target. Finally, as the year ended, Carl Icahn indicated renewed interest in Xerox Corp. (XRX) by announcing plans to launch a board fight to shake up management.
United States: Top 10 Topics for Directors in 2018
" Mondaq (12/14/17)"
Shareholder activism is among the top 10 topics for directors in 2018. There is an increased emphasis by prominent investors on challenging transactions, corporate strategy, and traditional corporate governance concerns, such as board composition and staggered boards. Securities and Exchange Commission (SEC) co-directors of enforcement Stephanie Avakian and Steven Peikin have warned, "The greatest threat to our markets right now is the cyber threat," so boards should learn from others' misfortunes and focus on governance, crisis management, and recommended best practices relating to cyber issues. Board composition remains a critical topic, which means companies should assess their current board composition, director search and nomination process, board refreshment practices, and diversity policies. With regard to corporate strategy, boards should expect to face conflicting pressures, because shareholders will expect companies to invest in both long-term growth opportunities and short-term stock enhancement measures, including the deployment of excess cash for stock buybacks. The Trump administration and the Republican-led Congress will look to advance reforms in 2018 designed to encourage companies toward public ownership and to facilitate capital formation in both public and private markets. Other key topics include corporate social responsibility, managing five generations of employees, internal investigations, SEC enforcement, and trade and sanctions. A special bonus topic is tax reform, a top priority for the administration and Republicans.
Gender Pay Gap Data Altered by Companies
" Financial Times (12/14/17) Ehrenberg-Shannon, Billy; Wisniewska, Aleksandra"
Four U.K. companies have made changes to their gender pay gap numbers since first submitting them to the government, following a Financial Times investigation last week. The four were among 16 companies that initially reported that, on average, there was no gap between what they paid their male and female employees, measured by both the mean and the median, a result which is statistically unlikely. Hugo Boss U.K., Dana U.K. Axle, Eastgate Care Group, and Age U.K. North Tyneside have all changed their numbers at least once, with Hugo Boss changing its submission three times. Hugo Boss initially reported that there was no gap between what it paid its male and female staff, but then changed the mean and median gap to 32.6% and 76.5% after the Financial Times questioned the original data submission. Following the publication of the Financial Time's analysis on Dec. 7, the data were changed again to a mean pay gap of 7.2% and a median of 4.7%. The Department of Education, which administers the gender pay gap portal, said that employers were legally liable for the accuracy of the 14 data points required by the government. Published data must be signed off at a senior level by companies, but the government does not verify the information.
Automatic Data Processing (ADP) Is Undervalued: Pershing Square
" Insider Monkey (12/14/17) Nadeem, M."
Pershing Square called Automatic Data Processing (ADP) a "classic investment" in its third quarter investor letter. The hedge fund had sought three seats on the company's board to play a role in boosting performance. Pershing Square wrote, "ADP is a simple, predictable, free-cash-flow generative business that has significantly underperformed its potential. As a conservatively financed, high-quality business in a sector with substantial positive growth, we believe it has modest downside. If it is able to achieve its potential, we believe it offers substantial upside...We have taken an active approach to our investment in the company to highlight the opportunity to drive significant value for all stakeholders. While we strongly preferred to work collaboratively with ADP's board and management to unlock the company's potential, as we have successfully done in nearly all of our prior active investments, they were unwilling to do so. Consequently, we were forced to run a proxy contest to highlight ADP's underperformance and potential for improvement to help effectuate the necessary change...We received substantial minority support no matter how the votes are counted. Putting aside the percentage outcome, we believe that the substantial majority of shareholders who did not support us were convinced that the message we delivered was heard 'loud and clear' by the company. These shareholders were willing to give the board and management another year to demonstrate progress on the opportunities that we had identified."
Steinhoff's Sleepy Board Needs Clearing Out
"Wall Street Journal (12/13/17) Wilmot, Stephen"
Steinhoff International—the owner of the Mattress Firm and Sleepy's brands—has watched its market value plummet this month in the wake of an accounting scandal. So far just one individual has resigned: longtime CEO Markus Jooste. The company said there was "no evidence" that CFO Ben La Grange was involved; however, he had responsibility for the group's finances since 2013. If La Grange was unaware of these missing assets, this should be reason enough for him to go. The same can be said for the entire supervisory board. Although the company announced Monday that it had bolstered independent governance, the only news was that three nonexecutive board members had formed a subcommittee. One of these, Steve Booysen, has chaired Steinhoff's risk and audit committee since at least 2015. That puts him in the position of attempting to fix a failure that he himself oversaw. Steinhoff's board has failed in its duty to oversee the company's management on behalf of shareholders. Thus, most of the board should be replaced if Steinhoff is to regain its credibility. Complicating an overhaul is the presence of a major shareholder on Steinhoff's board. Chairman Christo Wiese, who owns 23% of Steinhoff's stock, has stepped in as executive chairman. However, Wiese has known Jooste for decades and been on the Steinhoff board since 2013. Independent shareholders and creditors require a genuinely independent investigation, with an outside pair of hands directing the cleanup. A major accounting scandal cannot be resolved by the individuals who failed to spot it.
BlackRock's 2018 Focus: Board Diversity, Climate Risk
"Wall Street Journal (12/14/17) Stein, Mara Lemos"
Michelle Edkins, BlackRock’s global head of investment stewardship, discusses in this interview her priorities for next year, balancing clients’ concerns against delivering long-term returns, and the importance of engaging boards on cyberrisk, among other topics. Edkins noted that the goal for investor engagement is usually about building mutual understanding. “If we see a company with a board structure or level of disclosure…we think is not aligned with our expectations, we will engage, state our views and will listen to what the company tells us,” she said. Boards and management are typically very open to feedback, she said, adding it is better to hear concerns privately. Asked about hot topics for 2018, Edkins said: “In those markets that haven’t made much progress on board diversity, particularly gender diversity, we will be engaging. If we have engaged in prior years, we will be voting against the reelection of members of the governance committee unless there’s a very credible explanation for the lack of progress. Climate-risk disclosure will be an issue but one we don’t really see as a voting issue, simply because in most markets there isn’t a vote.” Regarding cyberrisk, Edkins noted the importance of a response protocol in case of a serious breach. “The purpose of our engagement is to understand how the board is overseeing the management approach to cyberrisk, and the extent to which certain members of the board have specific background or expertise,” she explained. While there is not necessarily a need for a cyber director, “it is important the board knows about the overall approach in protecting the company from a cyberattack and the risk of data loss, about the training of employees on information security.”
Fenwick Releases 2017 Trends in Corporate Governance, Comparing Silicon Valley 150 and S&P 100
" Marketwired (12/13/17)"
Fenwick & West has released its Corporate Governance Survey for the 2017 proxy season, providing insight into the management, leadership, and governance of technology and life sciences companies in Silicon Valley. The survey covers more than a decade of governance trends, comparing companies in the S&P 100 and their smaller and younger counterparts in the Silicon Valley 150 (SV 150), highlighting similarities and differences over time. The latest survey shows that longtime trends in the S&P 100 and SV 150 continued in the 2017 proxy season with a few exceptions, notably in the areas of dual-class stock structures and classified boards, where SV 150 companies are going their own way, in many cases to maximize protections against the vagaries of short-term market pressures—but also in board leadership where separation of chair and CEO roles is substantially more common. Adoption of dual-class voting stock structures has emerged as a recent clear trend among Silicon Valley technology companies-among the mid-to-larger SV 150 companies—though it is still a small percentage of companies. Historically, dual-class voting stock structures have been significantly more common among S&P 100 companies than among SV 150 companies, though the frequency in the SV 150 (11.3% in 2016 to 10.9% in 2017) has surpassed the S&P 100 (9.0% in both 2016 and 2017) in recent years. Classified boards are now significantly more common among SV 150 companies than among S&P 100 companies. Compared to the prior year, classified boards remained fairly consistent, holding steady at 6.7% for the top 15 companies in the SV 150 while the S&P 100 has been at 4.0% since 2016. The rate of implementation of some form of majority voting has risen substantially over the period of this survey. The increase has been particularly dramatic among S&P 100 companies, rising from 10% to 97% between the 2004 and 2017 proxy seasons. Among SV 150 companies, the rate has risen from zero in the 2005 proxy season to 59.9% in the 2017 proxy season. The prevalence of stock ownership guidelines has generally increased over time in both groups, but the SV 150 only recently surpassed the level of the S&P 100. 2017 continued the long-term trend in the SV 150 of increasing numbers of women directors and declining numbers of boards without women members. The rate of increase in women directors for SV 150 overall continues to be higher than among S&P 100 companies . When measured as a percentage of the total number of directors, the top 15 of the SV 150 now slightly exceed their S&P 100 peers (the top 15 averaged 25.4% women directors in the 2017 proxy season, compared to 23.9% in the S&P 100).
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