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Activist Deadline Calendar & Standstill Database

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Media Center

Featuring all breaking news and in depth articles and editorial press coverage pertaining to shareholder activism and corporate governance.
Thyssenkrupp Losses Widen as New CEO Pushes Unit Sale
Crystal Amber Fund Takes Aim at Directors of Allied Minds
Xerox Gives HP an Ultimatum to Reconsider Acquisition, Threatening to Take Its Case to Shareholders
Investor Crystal Amber Attempts to Wind Down Allied Minds
MPC: Elliott Ups Stake in Marathon Petroleum by 86%
Fund Considers Proxy Fights With Six Japanese Firms Next Year
Wesfarmers CEO Calls for Proxy Adviser Regulation
Middlefield Bank Appoints New CFO
Carl Icahn Placing a Big Bet Against Mall Owners
Vodafone's German Cable Unit Accused of Obstructing Deal Inquiry
McDonnell Takes Aim at 'Predatory Business Model'
Olympus May Cut Jobs in Aggressive Push to Increase Margins
SEC Chairman Cites Fishy Letters in Support of Policy Change
USA Technologies Sued by Its Largest Shareholder Amid Proxy Fight
Emerson Electric Has Big Plans for Twin Cities Unit
Paulson Gives up Opposition to Reduced Callon-Carrizo Deal
Rating Agencies Boost ESG Risk Analysis
HP's Clock Is Now Ticking Faster
Eldorado-Caesars Merger Approved by Shareholders
Second FirstGroup Shareholder Demands Review Into U.S. Units
Investor Takes Another Bite at Medifast
HP Rejects Xerox Offer but Remains Open to a Deal
Investors Rail Against SEC Proxy Adviser Reforms
Occidental Gets a Break With Buffett Stake, Icahn Court Defeat
Court Tosses Carl Icahn's Lawsuit Seeking Occidental Acquisition Records
This State Requires Company Boards to Include Women. A New Lawsuit Says That's Unconstitutional.
Risk Management and the Board of Directors
How Investors Have Reacted to the Business Roundtable Statement
Trucker's Recovery Under Elliott Management Takes the Long Road
Climate Risk Is Hitting Earnings—and More Reasons Company Boards Can't Ignore ESG Factors
Companies Benefit When Their CFOs Join Outside Boards, Research Suggests
The Shareholder Detective Helping Firms Fight Activists in Japan
ESG and Pay Are Top Concerns Among Engaged Investors
Video: Copier Jam
Big Profits Can Fuel Bad Corporate Behaviour, New Research Shows
California's 'Women Quota' in Boardrooms Faces Pushback
How Wall Street Is Pushing for More Women
Let Proxy Advisers Do Their Work
Bad Blood: Years of War Between Icahn and HP's Law Firm
Women in the Boardroom: A Global Perspective
2019 U.S. Spencer Stuart Board Index
Peace Breaks Out Among Activists and Companies
Board Pay Under the Microscope
Fall of the Ivory Tower: Controlled Companies and Shareholder Activism
Many Directors Thinking Beyond Just Shareholders, Research Shows
Overboarding by Public Company Directors: 2019 Update
Do Corporate Governance Ratings Change Investor Expectations? Evidence From Announcements by Institutional Shareholder Services

Voting Database

A new searchable database featuring the comprehensive voting records of all top institutional investors. This includes every proposal that was up for a vote and how the investor voted.

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13D Monitor | In The Media

11/21/2019

Thyssenkrupp Losses Widen as New CEO Pushes Unit Sale

Wall Street Journal (11/21/19) Boston, William

Thyssenkrupp AG (TKAMY) will scrap its dividend and accelerate efforts to sell its most profitable division amid widening losses and a worsening outlook for the coming year. On Thursday, the manufacturing conglomerate reported its net loss had widened from €62 million in 2018 to €304 million this fiscal year. Shares were down 10% in morning trading. After multiple profit warnings and two failed restructuring efforts, Thyssenkrupp continues to struggle with weaker demand from car markets, higher raw material prices, and uncertainty caused by international trade conflicts. New CEO Martina Merz has said she will cut jobs in the automotive division and criticized the performance of her predecessor, Guido Kerkhoff, who was beset by demands to break up from investors Cevian Capital and Elliott Management. She warned that losses would continue in the new business year as a result of rising restructuring costs. Merz's efforts to stabilize the company's balance sheet are centered on the potential sale or spinoff of the company's elevator business, a successful operation that is riding the global wave of urbanization and booked more than €8 billion in new orders in the past year. Thyssenkrupp needs the proceeds from a sale or share offering to finance ballooning pension debt and the costs of restructuring its struggling units, such as its steel business. The company also said it was focused on reviving the fortunes of its plant-building unit, but at the same time would explore a potential sale of the business. Merz has scrapped the "matrixed organization" created by Kerkhoff, which was tasked with identifying synergies between the various businesses.

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11/21/2019

Crystal Amber Fund Takes Aim at Directors of Allied Minds

Morningstar.com (11/21/19) Collard, George

Investor Crystal Amber Fund Ltd. aims to remove directors from Allied Minds PLC, the fund said Nov. 21. Crystal Amber has a 17% stake in Allied Minds, a technology and life sciences intellectual property commercialization firm. Crystal Amber first took a stake in the company in November 2018, and since then has engaged "extensively" with management. However, despite some "necessary and long-overdue changes," the leadership of Allied Minds is not acting in the best interests of shareholders, according to Crystal Amber. It cited "excessive" headquarter costs and misaligned incentive arrangements, in addition to the fact Allied Minds has not returned any cash to shareholders since 2014. Further, Allied Minds has made over 40 investments, but only made one successful exit, and only six of those holdings have any value, Crystal Amber said. Therefore, it wants to remove Non-Executive Chair Jeffrey Rohr, Non-Executive Director Fritz Foley, and co-Chief Executives Michael Turner and Joseph Pignato from the board. Crystal Amber wants Mark Lerdal and Stephen Coe, both with Leaf Clean Energy Co. (LEAF), to be appointed as non-executive directors. "The fund expects the proposed board will be more effective at minimizing ongoing costs and maximizing distributions to shareholders from the orderly realization of Allied Minds' remaining investments," Crystal Amber said. "The proposed removal of Allied Minds' executive directors from the board does not preclude their continued employment as executives."

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11/21/2019

Xerox Gives HP an Ultimatum to Reconsider Acquisition, Threatening to Take Its Case to Shareholders

CNBC (11/21/19) Feiner, Lauren

Xerox's (XRX) board says it will approach HP's (HPQ) shareholders if the company does not rethink its acquisition bid, Xerox said Nov. 21 in a letter to HP directors. Carl Icahn, who has a 10.6% stake in Xerox, has been urging a merger between Xerox and HP, in which he recently purchased a $1.2 billion stake. Icahn said a combined company would be in the best interests of shareholders from both companies, given the potential to reduce costs. Xerox Vice Chairman and CEO John Visentin said in Thursday's letter that his board "is determined to expeditiously pursue our proposed acquisition of HP to completion—we see no cause for further delay. Accordingly, unless you and we agree on mutual confirmatory due diligence to support a friendly combination by 5:00 p.m. EST on Monday, November 25, 2019, Xerox will take its compelling case to create superior value for our respective shareholders directly to your shareholders." Shares of HP dropped a bit and Xerox rose more than 1% in morning trading. HP's board said Nov. 17 that it unanimously rejected Xerox's bid to purchase the company, saying the offer undervalued HP and was not in the best interest of shareholders. Xerox offered HP $22 a share in its takeover bid, comprising 77% cash and 23% stock, or $17 in cash and 0.137 Xerox share for each HP share. Visentin said Xerox's directors were "very surprised" by HP's decision to turn down their offer. "Frankly, we are confused by this reasoning in that your own financial advisor, Goldman Sachs & Co., set a $14 price target with a 'sell' rating for HP's stock after you announced your restructuring plan on October 3, 2019," Visentin wrote. "Our offer represents a 57% premium to Goldman's price target and a 29% premium to HP's 30-day volume weighted average trading price of $17."

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11/21/2019

Investor Crystal Amber Attempts to Wind Down Allied Minds

The Times (London) (11/21/19) Ralph, Alex

Investment fund Crystal Amber is attempting to overhaul the board of Allied Minds (ALM) for a second time this year as it looks to wind down the struggling technology investor. Crystal Amber is calling for a general meeting to remove four directors and appoint two non-executives. Allied Minds stock has slumped since floating on the London Stock Exchange in June 2014, taking a $147 million hit two years ago when it wrote down seven of its subsidiary companies. The stock has also been exposed to recent crises at Woodford Investment Management, which was a major investor. Crystal Amber has held a stake in Allied Minds since last November and says that, despite "some necessary and long overdue changes," the company is still not acting the best interests of shareholders. Crystal Amber points to excessive headquarter costs, "misaligned incentive arrangements," and the “insufficient prioritization of excess cash redistribution to shareholders." Consolidated operating losses have totalled $465 million since 2014, and Allied Minds has invested in more than 40 companies but had achieved only a single successful exit. Crystal Amber has proposed appointing Mark Lerdal and Stephen Coe as non-executive directors. Both are directors of Leaf Clean Energy, where Crystal Amber has previously forced a shake-up. Shares in Allied Minds closed down 0.4%, valuing the company at £119.8 million.

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11/20/2019

MPC: Elliott Ups Stake in Marathon Petroleum by 86%

Market Realist (11/20/19) Ramkumar, Maitali

Elliott Management raised its stake in Marathon Petroleum (MPC) by about 86% in the third quarter of 2019. The increase came as Elliott advised MPC to break up into three major segments: refining, midstream, and retail. MPC has since announced that it will spin off its Speedway business into a separate retail entity, something Elliott had suggested in 2016. MPC's assets have grown significantly since it acquired Andeavor last year, becoming one of the largest downstream companies in the United States. Elliott opposed that expansion, which is part of what prompted its renewed involvement at the company. MPC stock has risen 4.8% this year and 1.8% this month, underperforming U.S. peers. MPC's valuation has also plunged below peers' average, dropping from a premium before the Andeavor acquisition to a forward PE multiple of 8.8x, lower than peers' 9.7x average.

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11/20/2019

Fund Considers Proxy Fights With Six Japanese Firms Next Year

Bloomberg (11/20/19) Lee, Min Jeong; Taniguchi, Takako

Asset Value Investors Ltd. will put items to vote at the AGMs of several Japanese companies if they do not boost shareholder returns. Joe Bauernfreund, CEO of the British investor, said he is dissatisfied with Tokyo Broadcasting System Holdings Inc. and IR Japan Holding because of their cross-holdings, or the stock they hold in other companies to maintain good relationships. Bauernfreund said his firm is not happy with the management, balance sheet, or current share price at TBS or at Teikoku Sen-I Co., saying shares of both could double if management reduced their cross-shareholdings and bought back stock at low prices. TBS has reported 37 shareholdings valued at $4.2 billion, which is more than its own market cap of about $2.9 billion, while Teikeku Sen-I holds a $191 million stake in Hulic Co. Asset Value set up a $129 million fund last year to engage companies with "inefficient capital structure" but attractive operating performance. Its campaigns come as investors grow more willing than ever to press Japanese firms to improve performance. Shareholder activism has been gaining traction in Japan since Prime Minister Shinzo Abe established a stewardship code for investors in 2014 and a corporate governance code the following year. Shareholders made proposals at the AGMs of 54 firms in June, the most on record and 14 more than in the previous year.

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11/20/2019

Wesfarmers CEO Calls for Proxy Adviser Regulation

Australian Financial Review (11/20/19) Mitchell, Sue

Wesfarmers' (WFAFY) CEO Rob Scott has joined Harvey Norman Chairman Garry Harvey in calling for more regulation of proxy advisers after a contentious annual general meeting season. Scott called for more "checks and balances" on proxy advisers and said that allowing companies to vet reports before publication would help avoid mistakes and allow "misunderstandings" to be corrected. His comments come after Wesfarmers narrowly avoided a 25% "no" vote against its remuneration report last week after its institutional investors followed the advice of proxy adviser ISS to vote against the report and its "excessive" incentive plan. About 21% of shares were voted against the remuneration report, even though four out of five proxy advisers had supported it. Harvey Norman has also called for regulators to investigate proxy holders after one adviser, Ownership Matters, recommended shareholders vote against his remuneration report and supported a board spill, among other measures. The Australian Securities and Investments Commission reviewed proxy advisers—which are regulated in the same way as other providers of investment research—and their engagement practices in 2017 and 2018. It recommended that advisers allow companies sufficient time to respond to requests for clarification or fact-checking of reports, be transparent in their reports about engagement with companies, and promptly consider feedback related to factual errors in their reports.

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11/19/2019

Middlefield Bank Appoints New CFO

Crain's Cleveland Business (11/19/19) Nobile, Jeremy

Middlefield Banc Corp.(MBCN), the parent company of The Middlefield Banking Co., has named senior vice president Michael Rantilla its new chief financial officer. Rantilla has been with the company since 2011. Rantilla will replace Donald Stacy in the CFO role; Stacy is staying with the company as executive vice president and treasurer. Rantilla's appointment as CFO comes as Middlefield faces off with Ancora Advisors, which has been urging the parent company to engage in a valuation and sale process, or to otherwise drive share growth by overhauling the company's current leadership. Ancora went public in August with its frustrations with Middlefield in regulatory filings. Since August, the company has conducted a two-for-one stock split. MBCN stock was trading at about $45.48 per share on Oct. 9 when the authorized split was announced. It is currently trading at about $24.65.

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11/19/2019

Carl Icahn Placing a Big Bet Against Mall Owners

Wall Street Journal (11/19/19) Zuckerman, Gregory; Fung, Esther

Carl Icahn stands to gain at least $400 million if mall owners run into challenges servicing their debt. Icahn's trade involves speculating on the direction of an index, called CMBX 6, which tracks the value of 25 commercial-mortgage-backed securities, or CMBS. The index has significant exposure to loans made in 2012 to malls that have lately been running into difficulties. A part of the index tracking its riskiest debt has climbed 20% year to date, suggesting optimism about the malls connected to the index. While malls have suffered rising vacancies and falling foot traffic, many owners have continued to service their debt by finding new tenants, while others have been able to modify or secure extensions to their loans. Only three of the roughly 40 malls and shopping centers linked to the CMBX 6 have been delinquent on their loans since 2012. Icahn has been purchasing credit-default swaps that protect holders against defaults of commercial-backed securities that include the debt of malls and other borrowers. Icahn makes money from these contracts when the CMBX 6 index drops, because investors buy these contracts when they bet on rising mall defaults, sending the index lower. While Icahn has lost millions on this trade, he has not backed off and may even add to what he considers a long-term position. Short sellers have said they don't need a large drop in mall occupancies to profit, nor do they need widespread near-term defaults. They are wagering that the net operating income of the malls will continue to drop and that owners will have trouble paying off loans in three years.

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11/19/2019

Vodafone's German Cable Unit Accused of Obstructing Deal Inquiry

Financial Times (11/19/19) Storbeck, Olaf; Fildes, Nic

Vodafone's (VOD) German cable division Kabel-Deutschland is facing accusations that it obstructed a court-commissioned inquiry after deleting its former chief executive's email account. The allegation came from an independent auditor investigating the company's management over its 2013 acquisition by Vodafone. Minority shareholders in Kabel-Deutschland including Elliott Management are engaged in a suit against Vodafone about the deal, which they say was underpriced. The judge hearing the case is set to present his ruling on Nov. 27, but minority investors, who represent a combined 23.4% stake in the cable operator, want the decision to be delayed until the special audit has been completed. The potential conclusion of the case comes as Vodafone faces the possible collapse of its Indian business and has cut its dividend in light of higher operating costs. A 2014 special audit into the deal found that Kabel Deutschland's senior executives may have violated their duty of care. Kabel Deutschland's board recommended Vodafone's offer of €87 a share, but internal advisers calculated a higher valuation that the company did not disclose. Kabel Deutschland also denied access to a number of emails to and from its then chief executive Adrian von Hammerstein, which auditors deemed to be of "material significance," and in 2016 it told an auditor that the emails no longer existed. The auditor said the failure to hand over the communications amounted to a "material obstruction" of the special audit. Thorsten Sörup, a specialist in IT law, said "the swift deletion of a former CEO's emails is very odd and highly unusual," especially for a large firm. He argued that a chief executive's corporate emails are similar to business letters which by law have to be archived for six to 10 years, adding that deleting them earlier was "at odds with the management's duty of care."

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11/19/2019

McDonnell Takes Aim at 'Predatory Business Model'

Financial Times (11/19/19) Pickard, Jim

British shadow chancellor John McDonnell has set out plans to shake up corporate governance, reform the audit market, and rewrite company law to tackle what he calls the current overriding "predatory model." McDonnell, a member of the country's Labour party, said a Labour government would install workers and consumers on the boards of all U.K. listed companies. Companies would be allowed to have either a single board or a new German-style two-tier structure with a supervisory board overseeing the executives. McDonnell confirmed that Labour would proceed with its plan to seize 10% of the shares of all companies with more than 250 employees in the United Kingdom over 10 years and hand them to staff through "inclusive ownership funds." McDonnell also emphasized that Labour would rewrite the companies act to make sure businesses were responsible to staff and customers as well as shareholders. Big companies that fail to adequately address climate change would be delisted from the London Stock Exchange, and a 20:1 pay ratio would be imposed between the highest and lowest paid workers in the public sector and private companies bidding for state contracts. All executive pay packages in large companies would be subject to an annual binding vote by stakeholders including staff and consumers, as well as shareholders. Claire Walker, co-executive director at the British Chambers of Commerce, said it would be "misguided" to impose a rigid approach to corporate governance, saying that "extensive government interference in ownership and governance could deter investors and damage confidence." The Institute for Fiscal Studies estimates that  the top 5% of those who pay income tax would face bigger tax bills under the party's plans for a 45% tax rate on incomes over £80,000 and a 50% rate on incomes over £125,000.

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11/19/2019

Olympus May Cut Jobs in Aggressive Push to Increase Margins

Bloomberg (11/19/19) Du, Lisa; Huang, Grace

On Tuesday, Yasuo Takeuchi, the CEO of medical device and camera maker Olympus Corp., said the company may cut jobs as it pushes forward to improve its operating margin. Takeuchi also backtracked on previous comments that the company would not sell its imaging unit. The business, which makes up 6% of overall sales, is the lowest margin and lowest growth business in Olympus' portfolio. His comments come a month after he presented a new medium-term plan that called for an operating margin of over 20% by March 2023, up from about 11% in the current period. Olympus also plans to regularly reassess its business portfolio to focus on its medical business. The company has been implementing restructuring measures since ValueAct Capital Management, which owns 5% of Olympus, added two directors to its board earlier this year. The company's shares have doubled this year, reflecting heightened investor confidence even as the company struggles with growing competition in its strongest markets. Takeuchi has said that ValueAct's push to add outside board members has brought a diversity of opinion to discussions of the company's future, and that the government's push for corporate governance reform has benefited corporate Japan. Olympus' public image has also been under pressure after an in-house lawyer raised questions about its financial practices last year, and its U.S. unit pleaded guilty to failing to file required adverse event reports for infections connected to one of its products.

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11/19/2019

SEC Chairman Cites Fishy Letters in Support of Policy Change

Bloomberg Quint (11/19/19) Mider, Zachary; Elgin, Ben

Securities and Exchange Commission (SEC) Chairman Jay Clayton cited some strange evidence to support giving companies more power over proxy advisory firms. Clayton proffered a mailbag full of encouragement from supposedly ordinary Americans, each of which bolstered Clayton's case for limiting the power of dissenting shareholders. But a closer look at the letters shows they are a product of a misleading and clumsy public relations campaign by corporate interests. Most of the people whose names were signed on the letters say they were unaware of the letters. Data embedded in each letter reveals the work of 60 Plus Association, a Virginia-based advocacy group paid by corporate supporters of the SEC initiative. The evidence includes shared errors and phrases that reflect prior campaigns by the National Association of Manufacturers, which helped form the Main Street Investors Coalition to oppose what it calls the "politicization" of the investment process. One of the initiative's priorities is changing shareholder voting rules. The SEC declined to comment on any irregularities regarding the letters.

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11/18/2019

USA Technologies Sued by Its Largest Shareholder Amid Proxy Fight

Philadelphia Business Journal (11/18/19) Blumenthal, Jeff

Hudson Executive Capital is suing USA Technologies (USAT) to invalidate a new bylaw amendment requiring a shareholder to own 20% of the company's stock to call a special shareholder meeting. Hudson, which is currently in a proxy battle with the company, owns 16% of USAT's stock and is its largest shareholder. The lawsuit asks the court to declare the amendment invalid and allow Hudson to move forward with its solicitation of a meeting. Hudson filed documents to solicit a special meeting after it said USAT rejected its most recent settlement offer, which would have had the USAT board be comprised of four incumbent directors and four new independent directors. The reconstituted board, chaired by an incumbent, would select a new CEO. USAT has condemned Hudson as attempting to seize control of the company without paying the premium to which its shareholders are entitled. USAT has not held an annual shareholder meeting since April 2018, because in September 2018 it was derailed by an internal audit that delayed its annual report. By early 2019 the company had hired a new CFO, reassigned other executives, saw its independent auditor resign, and unveiled a series of measures to improve its corporate governance. USAT filed its much-delayed fiscal year 2018 and 2019 reports on Oct. 10, weeks after USAT shares were suspended from trading on the Nasdaq Stock Market. The company lost $32 million in 2019 and $11 million in 2018, and Hudson continues to battle for control of the company. On Nov. 4, Hudson announced the names of eight people that it intends to nominate for USAT board seats, saying it had "exhausted every reasonable means" to implement desired changes to the company's operations.

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11/18/2019

Emerson Electric Has Big Plans for Twin Cities Unit

Minneapolis/St. Paul Business Journal (11/18/19) Rubbelke, Nathan

Technology and engineering company Emerson Electric Co. (EMR) has announced the establishment of its new Digital Transformation business, which is focused on helping manufacturers develop and implement digital technologies and programs. Stuart Harris, group president of the new business, says that the plethora of technology available to manufacturers can become confusing, and Emerson's goal is to help companies cut through that disruption. The new business, which accounts for about $650 million in revenue and 1,000 employees, will also include software development and manufacturing at several locations in Minnesota. Digital Transformation is positioned to become a key segment of Emerson's Automation Solutions division, which investor D.E. Shaw Group hopes to split off into a standalone company. The investor wants to break Emerson into an industrial automation company and a climate technology-focused company. D.E. Shaw has championed the company's Automation Solutions division, as the automation segment grew by 21% last year while its other major division, Commercial & Residential Solutions, grew just 6%. The hedge fund has described Emerson's automation segment as "top tier" and noted its high market share in process automation. With its new Digital Transformation business, Emerson sees a path to growth in the manufacturing market, hoping the unit will help clients solve a specific issue and then seek broader application.

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11/18/2019

Paulson Gives up Opposition to Reduced Callon-Carrizo Deal

Reuters (11/18/19) Sarkar, Arundhati

Callon Petroleum Co. (CPE) shareholder Paulson & Co. has said it will no longer oppose the shale producer's purchse of smaller rival Carrizo Oil & Gas Inc. (CRZO) after the company sharply cut its offer. The new terms of the deal value Carrizo at $723 million instead of the $1.2 billion initially offered in July. Paulson had said the earlier 25% premium was too steep and that Callon would lose its position as a Permian Basin pure play; while it maintains that position, it recently said it respects other shareholders' views on the deal. The hedge fund also reduced its stake in Callon from 9.5% as of Nov. 6 to 4.5% as of Nov. 18. Shares of both Carrizo and Callon fell more than 4% in morning trade on Nov. 18, pressured by a drop in crude oil prices, but had gained premarket following Paulson's support for the deal. Proxy advisory firms Glass Lewis & Co. and Institutional Shareholder Services had urged a "no" vote to the original Callon-Carrizo merger.

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11/18/2019

Rating Agencies Boost ESG Risk Analysis

Reuters (11/18/19) Ho, Prudence

Thanks to growing investor interest in sustainability, credit rating agencies are bolstering their efforts to identify environmental, social, and governance (ESG) risks for leveraged companies. Fitch Ratings launched its ESG approach for corporate and leveraged credits in January, showing how these can impact credit quality in a separate section of its credit reports. The firm aims to include its ESG approach, along with related ratings changes, in all published credit reports by mid-2020. Moody's (MCO) is also increasing the prominence of ESG analysis in its leveraged credit reports. S&P Global Ratings has developed a separate ESG Evaluation product that takes a broader look at such risks, adopting a longer-term view of a company's prospects. Unlike independent ESG ratings firms such as MSCI, traditional ratings agencies have access to companies' management and non-published numbers, meaning they do not have to rely on publicly available information. Moreover, as ESG factors increasingly guide institutions' decisions, bankers have to better identify and explain any of these factors that could impact investors' perception and demand for deals. Leveraged investors welcome more detailed ESG information that will allow them to produce more transparent credit reports and monitor portfolios on an ongoing basis.

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11/18/2019

HP's Clock Is Now Ticking Faster

Wall Street Journal (11/18/19) Gallagher, Dan

HP (HPQ) has rejected Xerox's (XRX) offer to acquire the company for $33.5 billion. Although Xerox did not make HP an offer that it could not refuse, the Carl Icahn-backed company likely is not going away. HP revealed that Xerox offered it $22 per share, a 20% premium to the price of HP's stock before the news of the initial proposal broke on Nov. 5. With about 77% coming in cash, and primarily financed by borrowing, the stock component would have left shareholders with a heavily indebted enterprise that would need to slash costs aggressively. Still, Xerox showed that it is serious, and investors in the companies are intrigued by consolidation in the printing and copying business. HP's shares were up 10% since the offer was reported while Xerox shares had jumped 7%, as of Friday's close. In its letter to HP, Xerox said it could save $1.5 billion "from combining our world class [research and development] groups and streamlining corporate functions."

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11/18/2019

Eldorado-Caesars Merger Approved by Shareholders

Gambling Insider (11/18/19) Flanders, Owain

Shareholders of more than 99% of Eldorado Resorts (ERI) and Caesars Entertainment (CZR) stock have voted to support a merger. A deal worth $17.3 billion was reached in June, subject to stakeholder approval. Approval of the deal has been granted, along with the reincorporation of Eldorado from Nevada to Delaware following finalization of the deal. The acquisition is expected to be completed in the first half of 2020. Carl Icahn became Caesars' biggest individual stakeholder earlier this year. A June statement from Icahn's website said, "This merger is the quintessential example of how an activist shareholder, working collaboratively with the board, can greatly enhance value for all stockholders."

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11/18/2019

Second FirstGroup Shareholder Demands Review Into U.S. Units

Morningstar.com (11/18/19) McGowan, Paul

Coast Capital Management LP, which has more than a 10% stake in FirstGroup PLC (FGROF), on Nov. 18 called for the company to commit to a strategic review of its U.S. businesses. Earlier in the day, the train and bus operator's biggest individual shareholder, Robert Tchenguiz—who has a 4.7% stake—criticized the company's management and called for Chairman David Martin to publicly announce his strategic plan announced in May. Coast concurred, saying a "formal and transparent" strategic review is in the best interest of all investors. In addition, Coast wants FirstGroup to "immediately embark on a formal sale process of the U.S. assets." Further, the investor said, "Coast Capital agrees that there are no synergies between the U.K. and U.S. assets of FirstGroup, and that a sale of the U.S. assets would not only release meaningful value for shareholders, but would also allow these businesses and their invaluable employees and managers to thrive under a well-capitalized owner which would focus on technological developments, growth of operations, and employee participation in the divisions' success." For his part, Tchenguiz said he is "very disappointed" in the management of FirstGroup, noting the company has "misled or at best confused the public" in its refusal to publicly announce its new strategic plan. "The statements made were ambiguous, confusing, and misleading, and suggested that the management of FirstGroup might still be committed to the defunct strategy presented by the deposed chair in May 2019. As a result, the investors suffered a massive 20% decline in the share price during the day," Tchenguiz said. He said Martin's comments in the company's interim report on Nov. 14 were in "direct contradiction with one another." Martin said in the report the company has met with major shareholders and is "clear" about what they want and is "looking at all options," referring to the sale of the company's U.S. units. He then said FirstGroup will focus on First Student and First Transit—FirstGroup's two primary contracts in the United States. Tchenguiz noted that "Key shareholders are not aware of what the strategy is—they have publicly on numerous occasions asked for a sale of the U.S. business. Such a step would enable the company's operations to thrive under different, and more competent, ownership, and would release an important amount of value to investors."

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11/17/2019

Investor Takes Another Bite at Medifast

Wall Street Journal (11/17/19) Driebusch, Corrie

Engaged Capital LLC is engaging weight-loss and nutrition company Medifast Inc. (MED) for the second time. The investor has taken a large position in the company, with plans to push for such changes as operational fixes and board restructuring. Medifast's stock has dipped over 38% since Jan. 1, putting the company's value at just under $900 million. Founded in 2012 by Glenn Welling, Engaged manages upwards of $1 billion from Newport Beach, Calif. Engaged has reached settlements for board seats in about half of its campaigns and often presses companies to sell part or all of themselves.

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11/17/2019

HP Rejects Xerox Offer but Remains Open to a Deal

Wall Street Journal (11/17/19) Lombardo, Cara

HP Inc. (HPQ) has rejected a $33 billion takeover offer from Xerox Holdings Corp. (XRX) as too low but says it is interested in a possible merger with the company. In a public letter to Xerox CEO John Visentin, HP's board said the company's offer significantly undervalues the company and voiced concern about the debt a transaction would incur. Still, HP said it recognizes the benefits of consolidation and is "open to exploring a potential combination with Xerox." Xerox and HP have both been cutting costs as the need for printed documents declines. The companies had previously discussed merging but were not in talks when Xerox made the offer. Last week Carl Icahn, who has a 10.6% stake in Xerox and a 4.24% stake in HP, called their potential union a "no-brainer" that would increase value for shareholders of both companies. Icahn has also indicated he is open to alternate structures, presumably including an HP takeover of Xerox. Both companies' stock prices have jumped since Xerox's offer became public, signalling that shareholders could be receptive to a deal. HP's letter urged Xerox to let the company perform additional due diligence to better understand Xerox's recent revenue declines and analyze potential cost savings from a combination. HP will report its fourth-quarter results Nov. 26.

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11/16/2019

Investors Rail Against SEC Proxy Adviser Reforms

Financial Times (11/16/19) Mooney, Attracta

Investors are upset with the Securities and Exchange Commission's (SEC's) proposed requirements for proxy advisers. The Council of Institutional Investors (CII) said it was "very troubled" after the SEC passed rules that will force proxy advisers to let listed companies review their advice before it goes to investors. The vote was a victory for big businesses in the United States, which have lobbied for more stringent scrutiny of proxy advisers such as Institutional Shareholder Services (ISS) and Glass Lewis. CII executive director Ken Bertsch said the proposals seem designed to bias the reports toward management and would delay shareholders receiving the advisers' reports, leaving them less time to analyze the advice and vote their shares. The CII and more than 70 investors have called on the SEC to extend the 60-day consultation period, arguing that there is not sufficient time to thoroughly answer the questions the SEC has sought more information on. Euan Stirling, head of stewardship at Aberdeen Standard Investments, said the rules would make holding companies accountable more difficult and more expensive. Last month, ISS filed a lawsuit against the SEC, claiming that its rights to free speech had been infringed. The U.S. Chamber of Commerce and the Business Roundtable have led lobbying efforts on behalf of public companies, claiming that proxy advisers issue blanket recommendations for annual meetings, are prone to error, and have conflicts of interest. Proponents of the rules say they are aimed to make sure investors have appropriate information so they can make informed choices.

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11/15/2019

Occidental Gets a Break With Buffett Stake, Icahn Court Defeat

Bloomberg (11/15/19) Crowley, Kevin

Occidental Petroleum Corp. (OXY) rose as much as 4.2% on Nov. 15 after Warren Buffett's Berkshire Hathaway Inc. (BRK.A) disclosed that it purchased an additional stake of $332 million shares in the debt-laden oil producer in the third quarter, making it the company's 17th-largest investor. Buffett purchased $10 billion of preferred shares earlier this year to help Occidental fund its takeover of Anadarko Petroleum Corp. The vote of confidence from Buffett is "certainly a positive for the stock," said Raymond James & Associates analyst Muhammed Ghulam. "I wouldn't be surprised if he buys more if the price drops lower." Also giving the company a boost was a Delaware judge's ruling against Carl Icahn's request for company files related to the Anadarko deal that would have helped him with his planned proxy battle to change Occidental's board next year. Icahn plans to appeal the decision.

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11/14/2019

Court Tosses Carl Icahn's Lawsuit Seeking Occidental Acquisition Records

Reuters (11/14/19) Hiller, Jennifer

On Thursday, a Delaware court judge ruled that Carl Icahn will not have access to Occidental Petroleum Corp.'s (OXY) Anadarko takeover records in his proxy fight against the firm's board. Icahn sued Occidental in the Delaware Court of Chancery last May, seeking financial records and details of its negotiation with Anadarko. Since then Icahn has committed to a proxy fight at the company, looking to appoint new management and accelerate asset sales to repay debt taken on with the Anadarko deal. In his decision, the Delaware judge said that Icahn's complaints of Occidental mismanagement "appear to be nothing more than disagreements" with the company's directors, and his lawsuit failed to show how the documents would advance his proxy contest. The decision comes a week after Icahn disclosed the sale of 10 million shares of Occidental, bringing the value of his stake down to about $900 million from $1.6 billion last May.

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11/14/2019

This State Requires Company Boards to Include Women. A New Lawsuit Says That's Unconstitutional.

Washington Post (11/14/19) Epstein, Kayla

Creighton Meland, a retired corporate attorney in Illinois and shareholder at California-based OSI Systems Inc. (OSIS), which has an all-male board, is suing California over a law that requires public companies to have women on their boards. He argues that the law is unconstitutional and forces him to consider candidates based on sex. Under the law, by the end of 2019, public companies that have their executive base in California must have at least one woman on their boards. By 2021, those numbers must increase depending on the size of their boards. OSI would be required to have at least one woman on its board by the end of 2019, and at least three by the end of 2021. According to the lawsuit, filed Nov. 13 in the U.S. District Court for the Eastern District of California, the state's mandate violates the equal protection clause because it discriminates on the basis of sex, and requiring Meland to consider gender when voting to add members to OSI's board forces him to discriminate. Attorney Anastasia Boden, who is representing Meland on a pro bono basis on behalf of the Pacific Legal Foundation, says companies already were working to increase board diversity amid pressure from investors and the public and should be allowed to continue. However, state Sen. Hannah-Beth Jackson (D), who sponsored the legislation, responded, "I strongly believe that this measure meets constitutional requirements and will be held up in court. Significant research has shown the importance of adding women to boards to improve profitability and add to the economic well-being of the state, as well the interest of the state to advance gender equality."

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11/20/2019

Risk Management and the Board of Directors

Harvard Law School Forum on Corporate Governance and Financial Regulation (11/20/19) Lipton, Martin; Neff, Daniel A.; Brownstein, Andrew R.

Risk management is squarely within the oversight responsibility of corporate boards, and the risk governance landscape that directors face has evolved over the years. Institutional investors such as BlackRock (BLK), State Street (STT), and Vanguard believe that sound risk oversight practices are key to enhancing long-term, sustainable value creation. In recent years, investors have engaged companies on more meaningful and transparent disclosures for board-level activities and performance with respect to risk oversight. Institutional investor scrutiny of risk oversight can potentially lead to shareholder campaigns as well as adverse voting recommendations from proxy advisory firms. Both Institutional Shareholder Services and Glass Lewis will recommend voting "against" or "withhold" in director elections when the company has experienced certain extraordinary circumstances, including material failures of risk oversight. Perceived failures of risk oversight at Boeing (BA) led ISS and Glass Lewis to make adverse voting recommendations during the 2019 proxy season. Letters, frameworks, and reports issued by BlackRock, State Street, and Vanguard in recent years reveal that institutional investors believe environmental, social, and governance issues have the potential to significantly affect a company's long-term financial value. As a result, boards must pay special attention to ensuring how ESG-related risks are being evaluated, disclosed, and managed.

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11/20/2019

How Investors Have Reacted to the Business Roundtable Statement

Harvard Business Review (11/20/19) Firestone, Karen

Earlier this year, the Business Roundtable announced that it was redefining the purpose of a corporation to accommodate a broader group of stakeholders, abandoning the notion of shareholder primacy. The move seems to reflect a broader movement toward environmental, social, and governance (ESG) principles. In recent years, investors like California pension authority Calpers and the Norwegian Sovereign Wealth Fund have pushed for ESG reforms at a variety of companies. Moreover, several leading asset managers have started offering products that allow shareholders to invest only in companies that are certified as following socially responsible guidelines. After the Roundtable proclamation, the author surveyed 20 institutional investors representing about $35 billion of assets under management as to how they felt about the new stakeholder model. Nearly all of the European managers surveyed said their clients have asked about their ESG efforts, which may explain why 49% of professionally managed assets in Europe adhere to some sustainability guidelines, compared to 26% for the United States and 18% for Japan. Most European investment managers reported having taken some action on ESG principles, such as disclosing ESG portfolio scores in quarterly reports, hiring an ESG consultant, and using an ESG stock screening program. By contrast, not one U.S. or Asian manager acknowledged formally adopting ESG-stock screening. One U.S. manager said that "until the formulas for CEO compensation in the U.S. changes to reward them for more than earnings per share and stock price appreciation, we are unlikely to take the Business Roundtable statement seriously."

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11/20/2019

Trucker's Recovery Under Elliott Management Takes the Long Road

Wall Street Journal (11/20/19) Smith, Jennifer

Elliott Management Corp.'s turnaround at Roadrunner Transportation Systems Inc. (RRTS) is taking longer than expected due to big swings in the freight market. Roadrunner was one of the fastest-growing trucking companies in the United States in the first half of the decade, but a rapid series of acquisitions proved difficult to integrate and an accounting scandal forced the company to restate several years of earnings. In the two years since Elliott made its initial $540 million preferred stock investment, the company has brought in new leadership, moved its headquarters, and embarked on a lengthy overhaul to streamline the business. Elliott now holds more than 90% of the company's common shares following a rights offering earlier this year to pay off rescue financing from Elliott and help fund operations. The turnaround is complicated by a freight market marked by slimming volumes, plentiful capacity, and weaker pricing, as well as disruptions at General Motors Co. (GM) that cost Roadrunner about $58 million in revenue. Roadrunner's revenue declined 13% in the first nine months of the year from a year ago, to $1.45 billion, and its net loss more than doubled, to $266.7 million. The company remains in a tough position in part because it did not benefit from the hot freight market of 2018, as Roadrunner's losses grew from $94.7 million in 2017 to $165.6 million last year. Roadrunner is now focused on improving its operations in the less-than-truckload business, as well as building up its logistics services in areas such as expedited air, truck brokerage, and freight forwarding. Those operations now account for about half the company's revenue and Roadrunner is considering new acquisitions in those areas, while business lines that do not fit in with them are being pruned.

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11/20/2019

Climate Risk Is Hitting Earnings—and More Reasons Company Boards Can't Ignore ESG Factors

MarketWatch (11/20/19) Beals, Rachel Koning

Seventy-three significant U.S. companies recorded material hits to earnings from extreme weather events in one year, and supply-chain disruptions from climate change rose 29% over the past six years, according to nonprofit sustainable-investing advocate Ceres. In a report released Nov. 20, Ceres calls for corporate boards to pay more attention to environmental, social, and governance issues or face growing risks to financial performance. The report, meant as a best-practices guide for boards, underscored the responsibility that boards hold for multiple constituents, including shareholders. A separate study of 500 big global companies forecast that potential financial implications from climate change-related factors could put almost a trillion dollars at risk. Shareholder support in the United States for climate-related resolutions at the companies they invest in reached a record high of 30% in the latest proxy filing round, but whether companies are fully responding to investor-driven ESG demands remains a mixed picture. Earlier in November, the Securities and Exchange Commission proposed two rules that would limit shareholders' influence over how companies address difficult matters like climate change and executive compensation. Beyond the regulatory situation, ESG-linked uncertainties and opportunities are expected to continue, and boards must prepare; thus far, 1,000 corporate lawsuits related to the effects of climate change have been filed in the United States, Ceres said. Its report recommends formalizing ESG efforts instead of employing loose goals toward this end, and adhering to complete disclosure in financial filings of material ESG risk.

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11/20/2019

Companies Benefit When Their CFOs Join Outside Boards, Research Suggests

Wall Street Journal (11/20/19) Maurer, Mark

Serving as an outside board director can be advantageous for chief financial officers, according to new academic research. Sarfraz Khan, an associate professor of accounting at the University of Louisiana at Lafayette, studied more than 3,700 U.S. companies from 2003 to 2014. He reports that companies with CFOs who served on at least one outside board had 21% fewer financial reporting errors than those without CFOs on outside boards. Khan argues that companies should encourage their CFOs to join outside boards because the insights gained will help strengthen management of their own businesses. "They'll hone their skills and probably imitate some practices of those other companies," according to Khan. This year, about 21% of CFOs at Fortune 500 and S&P 500 companies held an external public board seat, according to Crist|Kolder Associates. Outside directorships for CFOs have not been popular among companies historically due to the time-consuming nature of audit committee work.

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11/19/2019

The Shareholder Detective Helping Firms Fight Activists in Japan

Bloomberg (11/19/19) Lee, Min Jeong

As a result of Prime Minister Shinzo Abe's push for better corporate governance and shareholder relations, activists and others are becoming bolder and more successful in Japan. Shareholders made proposals at the annual general meetings of a record 54 companies in June, up by 14 from the previous year, and almost 15% of companies that held AGMs in June had a proposal with a disapproval rating of more than 20%. So-called cross-shareholdings, owned by friendly companies that tend to support incumbent management, have decreased from 34.1% of the market in 1990 to 10.1% this year. In this environment, Japanese companies are looking for ways to protect themselves, and IR Japan Holdings Ltd. offers one such route. IR Japan acts as a detective of the shareholder register, finding out the true owners of a company's shares, which are often hidden behind custodians. The consultant then advises management on how to handle dissident stockholders and ensure that they succeed in shareholder votes. IR Japan says 30% of what it scours is publicly available information such as company and investor filings. For the remaining 70%, IR Japan taps into the data it has gathered on asset managers and other investors over more than 20 years, as well as the information it has amassed on how shareholder lists have changed. IR Japan's operating profit for the six months ended September climbed 71% from a year earlier, and net income rose 68%. The stock has surged 254% in 2019, the biggest gain among 2,148 companies in the benchmark Topix index, and it is up 1,041% since listing in February 2015.

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11/19/2019

ESG and Pay Are Top Concerns Among Engaged Investors

Corporate Secretary (11/19/19) Schnitzel, Mike

According to a new report by Farient Advisors, engaged investors' top concerns have to do with environmental, social, and governance issues and executive compensation. The report finds that investors are particularly concerned about climate change and human capital management, as well as pay equality and worker treatment. Executive compensation continues to animate investors, who are especially concerned about performance and the inequality they believe is brought about by ever-escalating executive compensation against the stagnant wage of the average worker. Pay gets significant pushback from a portion of investors no matter how well some firms perform. Investors are also concerned about disclosure, which they feel has become overly complex to the point that it has become a barrier to transparency. Farient sees this complexity as driven by the proliferation of performance shares, through which long-term incentives are based on performance. Investors are asking for these shares, but they are also making incentive plans more complicated, and some investors are pushing back on whether the complexity is worth the tradeoff of making disclosures so hard to understand. Boards need to use as much plain English as possible in their disclosures and make sure that these link their programs with the firm's activities, while addressing investors' concerns. It is also critical for companies to ensure that their governance follows best practices and to have programs that make sense for the company.

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11/18/2019

Big Profits Can Fuel Bad Corporate Behaviour, New Research Shows

The Guardian (11/18/19)

Hubris sparked by stellar financial performance is a significant driver of irresponsible corporate behavior, according to research by Di Fan, a senior lecturer at the Australian National University's business school. Companies making above-average profits are more likely to breach their environmental or social obligations than are more average firms, Fan found. Internal corporate governance failed to prevent poor behavior and, based on his previous examination of U.S. companies, fines should be raised as much as sixfold to foster improved behavior. The research—published in a paper co-authored with colleagues from Spain, Ireland, and Hong Kong—comes amid fallout from broad corporate misconduct in Australia's financial services sector, and scandals over wage underpayment in other industries. Company executives are under political pressure to resist activists who demand environmental, safety, and governance issues be taken more seriously. Fan found that companies are more likely to breach environmental and social regulations if they are either financial under-performers or over-performers. Under-performers often are under economic pressure to "take shortcuts" to catch up financially, whereas in the case of stellar companies, "it is hubris behind this tendency," he said. "They are overconfident that when they do those illegal things they will not get caught," he said. "They should have resources to maintain environmental and safety procedures, but we find that even though they have resources, they do not use them." He urged regulators and shareholders to put pressure on executives to do the right thing. "Fines could be a way to do that," he said. "In our earlier research we found that fines are actually quite low."

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11/18/2019

California's 'Women Quota' in Boardrooms Faces Pushback

Axios (11/18/19) Brown, Courtenay

A number of lawsuits are challenging a California law that requires all public companies based in the state to have at least one female board member by 2020. One lawsuit, from an investor represented by a libertarian nonprofit, argues the law is "deeply patronizing to women" and "plainly unconstitutional." Another lawsuit, from a conservative activist group, argues that "spending taxpayer money to enforce the law would violate the California Constitution." Opponents hope to block the law before it becomes stricter, as companies with five-person boards will have to have at least two women by 2021, facing penalties of up to $300,000. The California Chamber of Commerce has warned that by focusing only on gender, the law might elevate gender as a priority over other aspects of diversity. Nonetheless, early data suggests that the law has been effective in its goal. According to new data by the nonprofit 2020 Women on Boards, California saw the biggest annual increase of all U.S. states in companies with boards that are at least 20% female.

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11/18/2019

How Wall Street Is Pushing for More Women

Axios (11/18/19) Brown, Courtenay

Major investors and proxy advisers have helped push the percentage of women joining boards to a record high. Last week, Institutional Shareholder Services (ISS) released its final voting guidelines for the 2020 proxy season. As expected, ISS said it will "generally" recommend that shareholders vote against certain board members at companies with all-male boards. In a similar vein, major shareholder State Street told Vox earlier this year that it voted against board directors over 1,000 times "for lack of board gender diversity." Nuveen, the investment arm of pension fund TIAA, has also pushed companies to put women on boards, though not at all costs. Nuveen did not support an unnamed portfolio company's first woman board member during this year's proxy season, saying the appointment would have "tipped the board to have less than a majority of independent directors."

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11/18/2019

Let Proxy Advisers Do Their Work

Wall Street Journal (11/18/19) Icahn, Carl

In this opinion piece, Carl Icahn criticizes the Securities and Exchange Commission's (SEC's) moves to check proxy advisers, which he says will impede the critical work of holding boards and CEOs accountable. Proxy advisory firms like Institutional Shareholder Services and Glass Lewis provide investors with independent advice when they vote at public companies. These research organizations often take the side of incumbent boards, but they are also free to criticize incumbents and sometimes do. The new SEC proposal threatens that freedom by making proxy advisers legally liable under securities laws. This means that a public company can claim any omission or fact in a proxy advisory report is "false" or "misleading," a much lower litigation standard than what existed before. Icahn likens this to newspapers facing liability for publishing articles critical of an incumbent politician. Worse, the SEC has put forth another rule that would require proxy advisory firms to let companies review their reports before investors can read the advice they purchased. This arrangement would allow corporations to interfere with advisers' research.

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11/18/2019

Bad Blood: Years of War Between Icahn and HP's Law Firm

CRN (11/18/19) Johnson, O'Ryan

As HP (HPQ) rejected Xerox's (XRX) takeover bid over the weekend, it included a line in its press release that said it was represented by the law firm of Wachtell, Lipton, Rosen & Katz. The apparently boilerplate reference to its legal advisers is closer to a declaration of war considering the years of enmity between Martin Lipton, a founding partner at the firm, and Carl Icahn, the likely architect of the Xerox takeover offer. Wachtell, Lipton, Rosen & Katz has helped clients such as Clorox (CLX) and Dell (DELL) push back against Icahn, and it has been tangled in lawsuits with the man it called a "bullying corporate raider" since 2013. In and out of court Icahn and Lipton have fought for years, with their most recent battle—rooted in Icahn's 2012 purchase of CVR, a refinery and fertilizer business—still ongoing in both New York state court and federal court. Icahn has been direct about his feelings toward Lipton, telling CNBC in April 2014 the attorney is "dead wrong" and a "witch doctor" who gets paid "millions and millions" by his clients to tell people activist investors are bad.

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11/18/2019

Women in the Boardroom: A Global Perspective

Harvard Law School Forum on Corporate Governance and Financial Regulation (11/18/19) Konigsburg, Dan

Progress on changing the trend of female underrepresentation on corporate boards continues to be slow, according to Deloitte Global's sixth edition of Women in the Boardroom: A Global Perspective. Deloitte examined regulation and efforts to increase gender diversity in boardrooms in 66 countries. Women hold just 16.9% of board seats, a 1.9% increase from the report's last edition published in 2017. The current rate of an approximately 1% increase of women on boards per year means it will take more than 30 years to achieve global gender parity at the board level. Still, actual parity is likely to be concentrated in the few countries making a concerted effort to address the issue. The rise in the number of women serving on boards is linked to the desire for a more inclusive kind of capitalism. Deloitte expects to see a growing consensus that women and other underrepresented groups are critical contributors to a well-composed board.

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11/18/2019

2019 U.S. Spencer Stuart Board Index

Harvard Law School Forum on Corporate Governance and Financial Regulation (11/18/19) Daum, Julie Hembrock; McCarthy, Laurel; Yerger, Ann

The past year was a record-breaking period for diversity on corporate boards, with 59% of the 432 independent directors added to S&P 500 boards being diverse (defined as women and minority men) directors, up from half last year, according to the 2019 U.S. Spencer Stuart Board Index. However, boardroom turnover remains low, and new directors accounted for only 8% of all S&P 500 directors. Two thirds (65%) of the 2019 incoming class came from outside the ranks of CEO, chair or vice chair, president, and COO. Although boards are adding younger directors, the average age of S&P 500 directors is 63, largely unchanged since 2009. The average total compensation for S&P 500 non-employee directors, excluding independent chairs, rose 2% to top $300,000 for the first time. S&P 500 nominating and governance committee members expect boardroom turnover to remain low over the next three years. The top priority for the next three years is expanding director sector and industry experience (82%).

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11/17/2019

Peace Breaks Out Among Activists and Companies

Wall Street Journal (11/17/19) Driebusch, Corrie

Shareholder activists are increasingly forgoing confrontation to establish peaceful relations with the companies they engage. In recent weeks, AT&T Inc. (T) and Emerson Electric Co. (EMR) have both been able to resolve high-profile challenges by agreeing to make modest changes. The deals are not quite settlements, which are formal arrangements that end activist campaigns and impose strict measures on both parties. Unlike those agreements, the new setups are more like nonbinding handshake agreements, entitling the activist to recommend or advise on board changes. Emerson has drawn an investment from D.E. Shaw Group, which praised a new board member the conglomerate appointed earlier this month. Elliott Management, which pursued AT&T, has also reached non-settlement agreements with Marathon Petroleum Corp. (MRO) and German software giant SAP SE (SAP) in recent months. Companies and investors are drawn to the flexibility of these agreements and both prefer to avoid the costs of a drawn-out proxy battle. The surge in non-settlements fits with a broader narrative in which activist shareholders wish to be viewed more as partners than antagonists. The new approach comes with risks, because without a formal settlement, neither party has a legal commitment to fulfill its promises. Investors with long track records are more likely to be trusted with a nonbinding agreement than newer, smaller players. Moreover, the changes that companies do make from these agreements may be less consequential than those achieved by more aggressive engagement.

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11/17/2019

Board Pay Under the Microscope

Harvard Law School Forum on Corporate Governance and Financial Regulation (11/17/19) Burton, Rebecca; Kim, Peter

Director pay programs are under increased scrutiny, and S&P 500 companies are working to adapt to this substantial change. Compensation limits are a primary interest, with Institutional Shareholder Services and Glass Lewis—and shareholders—taking direct action. This action is framed by trends such as board diversity and more emphasis on equity compensation than on cash pay. Willis Towers Watson's (WLTW) Global Executive Compensation Analysis team (GECAT) compared S&P 500 director pay program results from 2019 and 2018. The team found pay mix comprised 60% equity and 40% cash in 2019, a small change from 2018's 41% and 59%, respectively. Nearly two-thirds (65%) of companies awarded all or a portion of the annual equity value via restricted stock grants. One-year cliff vesting was the most popular option (64%) followed by immediate vesting (13%). Per-meeting fees for attendance at board and committee meetings declined, with board meeting fees dropping from 9% to 8% and committee meeting fees from 14% to 11%. Meanwhile, the use of committee member retainers rose, with cash member retainers edging up from 33% to 36%. Still, median values for these compensation elements were stable. The annual board cash retainer rose 5% at the median, from $95,000 to $100,000. The retainer changes combined with the fee and member retainer adjustments kept median annual cash compensation stable at $105,000. Annual stock compensation rose by 4% (from $160,828 to $166,743), helping drive overall total direct compensation increases of 3%. More than half (55%) of companies made changes to their compensation programs in the most recent fiscal year. Half of those companies made changes to the annual cash retainer, and 59% made changes to the annual equity grant. Slightly more than one-third of companies (34%) made changes to their annual pay programs that include an adjustment to both the cash retainer and stock grant. Of the companies that made a change to only one aspect of the cash retainer or equity grant, 25% changed the equity component of their pay program and 16% changed only the cash retainer. Meanwhile, 53% of companies in 2019 separated the roles of board chair and chief executive officer, up from 52% a year ago. Almost three quarters (74%) of stand-alone board chairs serve in a non-executive capacity (40% of the full S&P 500). Ninety-six percent of companies with a non-executive board chair offer additional pay for such service, with the median value climbing to $160,000, an increase of 7% at the median. Non-executive board chair compensation changed a bit, and these chairs are now almost twice as likely to receive an additional cash retainer versus additional equity compensation (88% and 45%, respectively) compared with 87% and 46% last year. As the prevalence of separate board chairs continues to increase, the number of companies that identify a separate lead or presiding director role declined from 71% to 68%.

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11/16/2019

Fall of the Ivory Tower: Controlled Companies and Shareholder Activism

Harvard Law School Forum on Corporate Governance and Financial Regulation (11/16/19) Freedman, Amy; Fein, Michael; Robertson, Ian

While investors continue to allocate to controlled or quasi-controlled companies, minority shareholders have increasingly shown willingness to push for change at these companies. A controlled company is defined as a corporation where more than 50% of voting power belongs to a single party, while a quasi-controlled company is one where at least 20% of voting power belongs to a single party. Controlled companies are more exposed to reputation damage than before, thanks to the general awareness of the tools of shareholder activism, the advent of advocacy and advisory groups that highlight environmental, social, and governance (ESG) groups at public companies, and advancing regulations related to disclosure and transparency. A number of shareholders have used activist techniques at difficult companies and won. For example, Third Point Management was able to gain two seats on an expanded board at Campbell Soup Co. (CPB), despite the fact that heirs of the company's founder held 41% of shares. Even if a shareholder proposal related to something like executive pay fails to pass, it could embarrass the company and educate its broader shareholder base and market about the actions of the current management. Shareholders who target controlled companies tend to rely on informal avenues to drive change, including private pressure, and aim for more incremental objectives. In lieu of conventional proxy fight and bargaining mechanisms, minority shareholders at a controlled company can use reputational damage and exposure to drive change.

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11/15/2019

Many Directors Thinking Beyond Just Shareholders, Research Shows

Corporate Secretary (11/15/19) Maiden, Ben

According to a survey of nearly 200 directors of public and private corporations by Diligent Institute and the Rock Center for Corporate Governance at Stanford University, 89% of directors say it is important or very important for their company to take into account the interests of non-shareholder stakeholders, such as employees, local communities, and the general public, when pursuing their business objectives. About 23% say shareholder interests are significantly more important than stakeholder interests, while 32% say shareholder interests are slightly more important than stakeholder interests. Around 36% say shareholder and stakeholder interests are equally important. Further, the survey found that 92% of directors are somewhat or very satisfied with what the company does to meet the interests of these stakeholders, but 43% do not believe their most important stakeholders accurately understand what their company does to meet their interests. However, 56% say their largest institutional investors understand what their company does to meet shareholder interests, and 60% of directors also believe their largest institutional shareholders genuinely care about stakeholders' interests. Among other findings, the survey reveals that U.S. companies face more pressure from advocacy groups to act for stakeholders' interests than companies elsewhere.

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11/15/2019

Overboarding by Public Company Directors: 2019 Update

Harvard Law School Forum on Corporate Governance and Financial Regulation (11/15/19) Haas, Steven; Way, Lawton

More investors are adapting their own policies on overboarding, which sometime deviate from the policies held by leading proxy advisors. Earlier this year, The Vanguard Group announced it would vote against any named executive offer (NEO) who sat on more than one outside public board and against non-executive directors who sat on more than four public boards. This is more restrictive than the policies of Institutional Shareholder Services (ISS), Glass Lewis & Co., and the Council of Institutional Investors, all of which more or less state that executive directors should serve on no more than two outside boards and non-executive directors should not serve on more than five boards. Going forward, companies may see lower caps on outside board service for all directors, including independent directors; continued customization of voting policies among institutional investors; and specific caps on the number of boards on which non-CEO NEOs can serve. Investors may also focus more on outside time commitments of non-executive board chairs and audit committee chairs, especially after a corporate crisis. Boards and management should review the overboarding policies of their largest investors and the leading proxy advisory firms alongside their corporate governance guidelines, determining whether to adopt or update company-specific overboarding policies. Companies should also consider how time constraints may affect board service and be prepared to discuss overboarding issues when engaging with institutional investors.

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11/14/2019

Do Corporate Governance Ratings Change Investor Expectations? Evidence From Announcements by Institutional Shareholder Services

Harvard Law School Forum on Corporate Governance and Financial Regulation (11/14/19) Guest, Paul M.; Nerino, Marco

Rating downgrades by Institutional Shareholder Services (ISS) cause negative announcement returns of –1.14%, according to an analysis of 18,911 rating change announcements from the proxy advisory firm by researchers at King's Business School at King's College London. Announcement returns are lower for downgraded firms with higher potential agency costs. Paul M. Guest, a professor of corporate finance, and Marco Nerino, a PhD student, report that the negative returns are not caused by higher expectations of an ISS proxy recommendation against management. The information content of ISS downgrade announcements is independent and cannot be explained solely by having drawn the market's attention to prior governance changes. The study shows that negative returns hold for firms with no governance change and correlate highly with the proprietary information content of the downgrade. Guest and Nerino conclude that ratings contain price-relevant information. And their analysis demonstrates that price relevance is not just specific to ISS.

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