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ValueAct Capital Management said in a letter to investors that it has called on the New York Times Co. (NYT) to boost prices and profits from both its service lineup, including games, recipes, sports, and product reviews, and its flagship newspaper. ValueAct, which holds a 7% stake in the company, cited research indicating that 74% of customers who subscribe to the package are willing to pay more once the promotional rate expires, which means the company should be "increasing price in line with value delivered." This comes as investors at Netflix Inc. (NFLX) and Walt Disney Co. (DIS) shift their focus beyond subscriber growth. The New York Times has long been focused on customer growth, charging new subscribers as little as $1 per week for a year and setting a goal in February to hit 15 million subscribers by the end of 2027. Huber Research Partners analyst Douglas Arthur said, "We've entered a new phase where people accept that the 15 million digital subscriber goal is within reach. The question now is where are the profits?" According to ValueAct, NYT should double or triple its profit margins from current levels. Meanwhile, NYT CEO Meredith Kopit Levien said during an earnings call this month that the company will be pushing new subscribers to purchase bundles of subscriptions and existing subscribers to upgrade in the second half of the year.
Jonathan Litt's Land & Buildings Investment Management has taken a stake of just under 5% in Apartment Investment & Management Co. (Aimco) (AIV), and sources say Litt has been in talks with management about ways to boost shareholder value, including a potential sale. The sources say the firm believes there is a large pool of potential buyers for the real estate investment trust and agrees with Aimco's assessment that its assets are worth at least $12 a share, a 30% premium to where they closed on Aug. 11. Litt also discussed ways to narrow Aimco's valuation gap with management, according to the sources, and Land & Buildings is considering all options to improve value. Aimco will have three directors up for election at its annual general meeting this year. Meanwhile, Westdale Investments, which made a bid to acquire Aimco in 2020 prior to its split, also disclosed that it owns a more than 5% stake in Aimco and plans to talk with management about improving value.
HSBC (HSBC) overstated the risks of spinning off its Asia unit when it rebuffed such a proposal by shareholder Ping An Insurance Group (PNGAY), an insider familiar with the Chinese insurer's thinking said, adding the move could unlock up to $35 billion in value. HSBC came under pressure from Ping An, its biggest shareholder with an 8.3% stake, in April to explore options including listing its mainstay Asia business to increase shareholder returns. The detailed rebuttal as described by the source represents the investor's most detailed pushback yet of HSBC's strategy, and signals Ping An's intention to continue the dispute. Details of Ping An's internal discussions come after HSBC on Aug. 1 itself pushed back against the investor's proposals while reporting its half-year earnings. HSBC said a break-up would mean a potential long-term hit to the bank's credit rating, tax bill, and operating costs, and bring immediate risks in executing any spinoff or merger. Ping An believes a spinoff would generate an extra $25-$35 billion in market value and release over $8 billion in capital, the source said, citing "external" analysis. Responding to HSBC's argument that spinning off its Asian business will hit global synergies, the source said HSBC would remain a major shareholder of the unit after the separation and both parties could enter into cooperation agreements. The spat between HSBC and Ping An shows the challenges facing the British bank, as it attempts to navigate geopolitical tensions between the United States, Britain, and China amid criticism from lawmakers in the West over the bank's activities in Hong Kong.
Investindustrial will pay $950 million to acquire a substantial portion of TreeHouse Foods Inc.'s (THS) meal-prep business. The deal involves about $530 million in cash from the private equity firm at closing and about $420 million in senior secured debt to be provided by TreeHouse. The move comes after TreeHouse announced last year that it would perform a review that included exploring the sale of a large portion of its meal-prep unit. The company will use the proceeds to pay down debt and strengthen its balance sheet. In April, TreeHouse reached an agreement with Jana Partners that gave the investor a seat on its board.
A lawsuit from the National Association of Manufacturers that aimed to force the U.S. Securities and Exchange Commission (SEC) to enforce Trump-era restrictions on the ability of proxy advisory firms to guide shareholders on votes at company annual meetings has been halted. The move by Judge David Counts of the U.S. District Court for the Western District of Texas effectively stays the litigation but is not a disposition or dismissal of the case. The SEC pushed for the lawsuit to be dismissed after adopting rules last month overturning the regulations targeting proxy firms.
Wireless transport solutions specialist Aviat Networks Inc. (VVNW) issued an open letter to Ceragon Networks Ltd. (CRNT) shareholders, seeking to correct the newest false assertions and mischaracterizations from Ceragon's board. "Earlier this week, the Board rejected Aviat's revised proposal to acquire Ceragon for $3.08 per share in cash and stock, in another letter that distorts the record and which is replete with false claims and mischaracterizations," the letter reads. The missive states that the proposed deal would yield substantial value to investors in excess of what Ceragon can provide through its current strategy, and with a lower execution risk. Aviat contends that Ceragon's long-promised next-generation 28-nanometer chip will be beset with problems demanding a costly redesign, "which we fear could lead this entrenched Board to raise additional capital through a dilutive equity offering. The truth is that Ceragon is struggling on its own, and is not going to achieve outlandish price targets, or even its own projections." The letter continues that Ceragon's board has made every effort to block a potential transaction with Aviat or to maximize value for all investors, despite claims to the contrary. Citing a bloc of four directors led by Chairman Zohar Zisapel as the main obstruction, Aviat calls for their ouster. "A vote for all of Aviat's five director nominees on the gold proxy card is the path to creating board independence and greater shareholder value," the company writes.
ValueAct Capital Management has built a new position in the New York Times Co., arguing the newspaper company could boost digital sales and margins through an aggressive rollout of its subscriber-only bundles. ValueAct stated in a letter to investors Aug. 11 that it now owns a 7% stake in the newspaper. It said the current valuation doesn't reflect the company's long-term growth prospects in almost any potential economic environment and that management has a number of opportunities to offset the macroeconomic headwinds the industry faces. A key to this growth will be a more aggressive rollout of all its subscriber-only products, ValueAct stated, including The Athletic, crosswords and games, cooking, and news. “Our research suggests that most current readers and subscribers are interested in the bundle and would pay a large premium for it but are not aware the offering even exists,” ValueAct stated in the letter. “This is an opportunity we believe management needs to drive with urgency, as it is the biggest lever to accelerate growth, deepen NYT’s competitive moat, and ensure the long-term strength and stability of the platform.” Over the long term, there is potential for the newspaper to see robust double-digit digital revenue growth and see margins expand by up to three times, ValueAct stated. The company’s shares advanced as much as 12% and were up 9.4% to $34.66 at 1:24 p.m. in New York trading, for a market value of approximately $5.8 billion. “A generational shift is underway where U.S. consumers prefer to consume high quality news digitally—across websites, social medial channels, mobile apps, podcasts, email newsletters, push alerts, and other surfaces—which can only be satisfied by a scaled franchise with a trusted brand like NYT,” ValueAct stated in the letter. “This shift creates tremendous competitive pressure,” it said. “While most of its fragmented competition is challenged for growth, NYT is building a bigger, more profitable, and more defensible business.”
Pinterest (PINS) is faced with navigating not only declining users and a rocky e-commerce market, but the creator economy on platforms like TikTok, which allow content creators to directly engage with users, a model proving to be increasingly important to advertisers. In the past year, Pinterest has attempted to address core business issues, rolling out features that make the app more attractive and accessible to creators, brands, and advertisers. Pinterest also has made it easier for companies to upload their product catalogs, list their products as shoppable Pins, and add product tags. Pinterest's bid for reinvention was reinforced this June, when co-founder Ben Silbermann stepped down as the company's CEO and was replaced by Bill Ready, the previous leader of Google's commerce unit, a change in leadership that points to its continued post-pandemic effort to focus on e-commerce, online retail, and the creator economy. Earlier this month, Pinterest again posted disappointing financial results, missing estimates for both earnings and revenue. But the latest user data wasn't all bad. Despite global monthly active users declining by 5% from a year earlier to 433 million, Pinterest pointed to better than expected user retention. And the news that Elliott Management is now the largest shareholder caused Pinterest's stock to soar in early August by more than 21%. “As the market-leading platform at the intersection of social media, search, and commerce, Pinterest occupies a unique position in the advertising and shopping ecosystems” Elliott said. “And CEO Bill Ready is the right leader to oversee Pinterest's next phase of growth.”
All NASDAQ-listed companies must disclose a board diversity matrix by the later of (1) August 8 or (2) the date the company files its proxy statement for the 2022 annual meeting of shareholders (or, if companies do not file proxy statements, in their annual report on Form 10-K or 20-F). Companies may provide the disclosure in their proxy statement (or if companies do not file a proxy, on Form 10-K or 20-F), or on the company's website. Beginning on August 7, 2023, listed companies will need to have, or explain why they don't have, at least one (and by later specified dates, two) diverse directors. Certain relief is provided for Smaller Reporting Companies and Foreign Issuers, as well as companies with five or fewer directors. A board diversity matrix must disclose the total number of directors on the board, as well as the number of directors based on gender identity and race and ethnicity and the number of directors who self-identify as LGBTQ+. It must also include the number of directors who did not disclose a demographic background.
Suncor Energy (SU) could reap over $8 billion and boost returns to shareholders if it sells its Petro-Canada gas station business, but Canadian antitrust rules and the need for the unit's steady profits could deter that move, analysts and shareholders said. Suncor's poor safety record and lackluster stock performance prompted a demand for changes from Elliott Investment Management. The oil producer responded by replacing its CEO in July and agreeing to review its retail fuel unit by the end of this year. Analysts estimate the unit could be worth C$5 billion to C$11 billion, but it could be hard to actually get that price, since potential buyers are aware of the pressure that Suncor management is under. "The way they are going about the sale, they won't get a good price," said Rafi Tahmazian, director and senior portfolio manager of Canoe Financial LP, a Suncor shareholder. "They are telling the world they are stressed." Shedding the retail business would mean Suncor loses a stable cash-generating business to hedge against volatile oil prices, said Mike Archibald, vice-president and portfolio manager at AGF Investments, another Suncor investor. Suncor's retail and wholesale business generated C$800 million in earnings before interest, taxes, depreciation, and amortization (EBITDA) last year, not counting corporate overhead, 7% of Suncor's total EBITDA, according to Elliott.
Ceragon Networks (CRNT) released a statement with reference to a report issued by Institutional Shareholder Services (ISS) in connection with its Extraordinary General Meeting (EGM) scheduled to be held on Aug. 23. "We are pleased that ISS recommends that shareholders vote AGAINST all of Aviat Networks' (AVNW) nominees and echoes Ceragon's concerns regarding valuation and certainty," it stated. "We believe that Aviat's nominees would leave Ceragon with a weak, inexperienced board that will not be able to effectively oversee the company's strategy or negotiate on behalf of Ceragon shareholders." The statement continued, "Our board continues to refresh itself, including the addition of three new independent directors at last year's AGM. Moreover, we continue to work on refreshing our board with input from our shareholders. As we have repeatedly stated, our board remains open to exploring a transaction with Aviat or anyone else, but only if such combination delivers full, fair, and certain value." Ceragon adds, "We are also pleased to have the support from our research analysts and many of our shareholders, including our largest shareholder, who believe that Aviat's indication of interest significantly undervalues Ceragon and support our board."
Philip Morris Holland Holdings has extended the acceptance period for its offer to Swedish Match (SWMAY) shareholders until Oct. 21, as the bid awaits approval in Europe. On May 11, Philip Morris International (PM), through its Dutch subsidiary, offered SEK161.2 billion ($16.14 billion) to purchase Swedish Match. The acceptance period for the offer commenced on June 29 and was initially set to expire on Sept. 30. In a statement, PM said it has obtained all international approvals required for the transaction other than merger control approval from the European Commission (EC), which is still pending. Based on customary pre-notification discussions with the European Commission, the company believes the EC will not complete its review of the transaction before Sept. 30. The Swedish Match board of directors has recommended shareholders accept PM's offer, but some shareholders have raised objections. Earlier this year, Bronte Capital opposed the takeover, saying the offer price was “unacceptable.” Meanwhile, Elliott Investment Management has reportedly been building a stake in Swedish Match and plans to oppose the pending takeover of the tobacco company by PM under its current terms. However, it is unclear whether Elliott will succeed in building a large enough stake to stop the deal on its own.
The U.S. Securities and Exchange Commission (SEC) on Aug. 10 proposed a rule to boost the quality of disclosures it receives from big hedge funds about their investment strategies and leverage. The rule, which was proposed in conjunction with the Commodity Futures Trading Commission, is part of a wider regulatory effort to boost transparency of private funds amid concerns the industry is a growing source of systemic risk. It would broaden reporting requirements for advisers and big hedge funds with a net asset value of at least $500 million when filing Form PF with the SEC. Form PF is the main method used by private funds to disclose confidentially to the SEC purchases and sales of securities. The new rule would mandate that funds offer more details on their investment strategy and exposure, including borrowing and financing arrangements, open positions, and certain big positions. It would also mandate that big hedge funds report their cryptocurrency exposure. "We've tried to take a measured approach, but add to the detail in the context of systemic risk," SEC Chair Gary Gensler told reporters. Regulators became worried about risk in the private fund industry after hedge fund de-leveraging contributed to turmoil in the U.S. Treasuries market in March 2020. Hedge funds also played a role in last year's meme stock frenzy involving GameStop Corp. (GME) and other companies. Critics say that while the sector grew following the 2007-2009 financial crisis, regulatory scrutiny of private funds—which are big users of borrowed financing—has not kept up. The International Organization of Securities Commissions stated in a January report that some private fund leverage is being kept hidden. SEC Commissioner Hester Peirce criticized the new proposal, saying the information is unnecessary and that private fund investors—insurance companies, endowments, pension funds, and others—are capable of assessing their own risks. The Alternative Investment Management Association and the Managed Funds Association said the proposed changes are burdensome and could duplicate existing reports.
AB Value Management LLC and Bradley L. Radoff, who own approximately 17.6% of the outstanding shares of Rocky Mountain Chocolate Factory Inc. (RMCF), have announced that Glass, Lewis & Co. LLC has recommended the company’s stockholders vote on the BLUE proxy card to elect the AB Value-Radoff Group’s independent nominee. The recommendation from Glass Lewis follows Institutional Shareholder Services Inc. recently recommending stockholders vote for change on the BLUE proxy card. In its full report, Glass Lewis affirmed the AB Value-Radoff Group’s case for boardroom change at Rocky Mountain, saying, “[…] there appears to be valid cause for ongoing shareholder concern from a corporate governance perspective.” Furthermore, Glass Lewis says, “as the Dissidents highlight in their materials, RMCF's total shareholder returns have been meaningfully negative during [Brett Seabert’s] tenure on the board.” “While [Mr. Seabert’s] service on RMCF's audit committee is notable, given his lack of relevant industry experience outside of RMCF and his limited public company board experience, as well as his personal ties to RMCF's former CEO, who only recently left the Company, we believe the Company could be overstating his importance and we further question whether he is the best fit for the board at this time amid the other board and management changes.” With respect to the AB Value-Radoff Group’s nominee and proposed mutually agreed upon director candidate, Glass Lewis noted: “…[I]t would seem to us that Ms. Sutton's experience in the food industry, with franchising, and in terms of corporate governance would more than adequately fulfill the board's stated prerequisites for a seventh director joining the board.” “In all cases, we believe the election or negotiated addition of another director who has applicable industry experience (most likely being either Ms. Bradley or Ms. Sutton) will help the Company formulate and execute a turnaround plan and growth strategy with the objective of improving RMCF's performance, governance, and shareholder returns.” The AB Value-Radoff Group commented: "We do not believe Brett Seabert should continue serving as a director of the Company given his lack of relevant experience, track record of overseeing significant value destruction, and ties to the failed founder-led era. Although Rocky Mountain seems intent on stonewalling negotiations, we want stockholders to know that we will continue our efforts to reach a good faith settlement with the Company. Adding a highly qualified female director to the Board – as Glass Lewis notes – would help Rocky Mountain execute a turnaround plan to improve the Company’s abysmal corporate governance and persistent financial underperformance.”
Strive's U.S. Energy exchange-traded fund (DRLL), which launched Tuesday and counts Peter Thiel and Bill Ackman as backers, aims to build enough assets for Strive to influence the boardroom, according to co-founder Vivek Ramaswamy. Strive was founded as a rebuke against "woke" ETFs that support environmental, social, and governance (ESG) principles. With an expense ratio of 41 basis points, Strive is positioning itself against BlackRock's (BLK) $2 billion iShares U.S. Energy ETF (IYE), which assesses the same fee. Ramaswamy said DRLL's attraction is that Strive would wield its shareholder-voting power to encourage oil companies to "drill more and frack more." He contended that "U.S. energy stocks have tremendous potential if they're unshackled from the shareholder-imposed ESG mandates." About $27 million traded in DRLL on Tuesday, which Bloomberg Intelligence senior ETF analyst Eric Balchunas called an impressive one-day showing for an "indie ETF." ESG funds have faced headwinds lately, having accumulated about $4 billion so far this year, following two straight years of over $30 billion in inflows. "Principle-based ETFs have historically had a really tough time gathering assets, so it is definitely helpful to have a nice start like this," Balchunas said. "Now comes the hard part though of finding other investors outside of the friends and family."
Citrix Systems (CTXS) edged up 0.5% after a report that Bank of America (BAC) plans to begin discussions Monday on efforts to sell parts of $15 billion in debt financing for a takeover of Citrix. The preliminary talks are expected to concentrate on the secured part of the financing ahead of official sales, which may begin after Labor Day. Banks would likely retain some of the secured debt and approximately $4 billion of unsecured debt. Last month Bloomberg reported that the $15 billion debt sale associated with Citrix's sale to Vista Equity and Elliott Management had been postponed until after Labor Day because of volatile markets.
Liveperson (LPSN) shares rose more than 3% to $13.39 in early trading Aug. 10 even as investment firm Loop Capital downgraded the conversational commerce and AI software company, citing the need for better sales execution. Analyst Mark Schappel lowered his rating on Liveperson shares to hold from buy. "While we think there's enough strategic value in the asset and Starboard's influence on the Board should bring much-needed operational change and stability to the company, we now think the stock will be range bound between $14 and $16 until sales execution improves consistently and the business sees progressive signs of improvement," Schappel wrote in a note to clients. Further, the overall deal count was "essentially flat" when compared to last year, at 104 versus 105, while there were five seven-figure deals, leading to a 23% year-over-year increase in average revenue per user, Schnappel stated. Jana Partners took a stake in Liveperson in the first quarter, buying 455.4 million shares.
Richemont (CFRUY) Chairman Johann Rupert told Swiss newspaper Finanz und Wirtschaft that he will not cave to shareholder Bluebell Capital Partners' push to overhaul the boardroom. On Monday the company advised shareholders to oppose appointing Bluebell candidate Francesco Trapani as a board member representing investors holding A category shares, instead presenting one of its existing independent directors. Rupert controls all the non-listed category B shares in Richemont, representing 9.1% of the capital, along with half of the voting rights. He said there was no reason to refresh the board "either legally or morally." He noted, "Our board may be slower and more conservative than others. But its openness and collegiality are exactly its advantage. I will not be blackmailed." Bluebell wants Richemont to focus on its jewelry and watches business, claiming it could double its share price in the medium term. Rupert said the board weighed the interests of all shareholders, whether they owned listed A or unlisted B shares. "I can assure you of one thing: I will not change our capital structure," he stated. Bluebell co-founder Giuseppe Bivona said the fund's campaign would continue as Richemont's board was not representing those who assume the most economic risk. Rupert assured that the company was well-positioned to weather the economic slump and had a robust balance sheet. "We've benefited from being prudent. It is extremely beneficial to have been conservative in the good times," he said, adding that Richemont's family-governed structure helped it plan ahead. Richemont posted 12% higher sales in the three months to June, as a 37% drop in mainland China was offset by strong U.S. and European demand.
Tesla (TSLA) CEO Elon Musk has sold $6.9 billion worth of shares in his electric auto company, asserting that the funds may potentially be used to fund a Twitter (TWTR) deal if he loses a legal fight with the social media platform. Reuters estimates that Musk sold approximately 7.92 million shares between Aug. 5 and Aug. 9, and now owns just under 15% of the automaker. The latest sales bring overall Tesla stock sales by Musk to about $32 billion in less than one year. Musk tweeted on Tuesday: "In the (hopefully unlikely) event that Twitter forces this deal to close *and* some equity partners don't come through, it is important to avoid an emergency sale of Tesla stock." Twitter shares increased by 3.5% to $44.35 in early trading, but were still significantly below Musk's offer price of $54.20 per share. Tesla shares rose by nearly 4% at $882. After Musk backed away in July from his April 25 agreement to purchase Twitter for $44 billion, the social media firm sued him to compel the completion of the transaction. The two parties now are scheduled for an Oct. 17 trial. On Tuesday, Musk also said he was finished with selling Tesla stock, but would repurchase it if the Twitter deal collapses. Mark Taylor, a sales trader at Mirabaud Securities, said: "The removal of the 'firesale' risk, the fact Musk has already raised cash in case of a Twitter decision going against him, and the comment that he'll buy back stock if [the] Twitter deal gets dropped all builds into a positive bias for Tesla." Gary Black, managing partner of Future Fund LLC, said in a tweet: "Elon's sale of (Tesla shares) over the past three days significantly increases odds the (Twitter) deal gets done, albeit at a slightly lower price $50-$51/share." Wedbush analyst Dan Ives said the likelihood of Twitter receiving a settlement of $5 billion to $10 billion from Musk was starting to be factored into the social media company's stock.
Wireless transport solutions provider Aviat Networks (AVNW) on Wednesday announced that Institutional Shareholder Services (ISS) has recommended that shareholders of Ceragon Networks (CRNT) vote FOR the removal of two members of Ceragon's board of directors, Yael Langer and Ira Palti, at the upcoming Extraordinary General Meeting of shareholders on Aug. 23. Aviat continues to believe that shareholders should also vote for the removal of David Ripstein and FOR the election of all five of Aviat's director nominees. "We are pleased that ISS recognizes the need for boardroom change at Ceragon, to ensure an independent evaluation of strategic alternatives, including Aviat's acquisition proposal," said Aviat President and CEO Peter Smith. "We believe, however, that the fastest path to a premium transaction lies in not just removing two of Ceragon's entrenched directors, but also removing ALL THREE of the targeted directors, and electing our highly qualified director nominees to independently consider value creation opportunities." In its report, ISS critiqued the board's refusal to engage in negotiations with Aviat regarding a potential transaction. "It is questionable to what extent the board has been open to negotiating a deal; the board was apparently more concerned with issues that would be secondary to price, like firm financing commitment or a high level of breakup fees." ISS continued, "The target board does not appear to have engaged in detailed discussions, and, leaving aside the potential for a deal, does not appear to inspire confidence in investors in addressing the strategic challenges the company faces. The apparent standalone execution risks and governance concerns lead to the conclusion that some board change is warranted to ensure a more fulsome evaluation of strategic alternatives." In its report, ISS also questioned the independence of certain board members from Ceragon Chair Zohar Zisapel, as well as Zisapel's own sale of Ceragon stock at a price far in excess of where the stock trades today. "The targeted directors are (or were for a long time) related to the RAD group and investors may question to what extent they would challenge the company's chair/co-founder; the founder and the three directors represent a majority of the board." Aviat's Smith, meanwhile, said, "Aviat's revised premium proposal announced on August 2 to acquire Ceragon for $3.08 per share – including $2.80 per share in cash and $0.28 in equity consideration of Aviat stock – represents a tremendous premium of 47% to the closing price of Ceragon shares on June 27, 2022, and provides a balance of immediate and long-term value, allowing shareholders of both Aviat and Ceragon to benefit from the significant upside of the combined company. Based on Ceragon Board's refusal to date to work towards a negotiated transaction, we fear that shareholders stand to lose this premium offer if ALL FIVE of the Aviat nominees are not elected."
U.K. insurer Aviva (AV) intends to return more cash to shareholders, anticipating a better-than-expected 14% increase in first-half operating profit, bumping its shares to the top of the FTSE 100 gainers. Cevian Capital owns 6% of Aviva's shares and has urged the company to boost payouts, including the return of 5 billion pounds to shareholders by the end of this year. Aviva has already returned 4.75 billion pounds to investors after raising 7.5 billion pounds in disposals since Amanda Blanc became CEO in July 2020. She said capital returns would be sustainable and regular, noting the insurer also could accommodate "bolt-on" acquisitions following its 385-million-pound buyout of Succession Wealth. Company shares climbed 6% to a two-month peak, while Jefferies analysts forecast Aviva to offer recurring 250-million-pound buybacks. Aviva's operating profit grew 14% to 829 million pounds compared to 742 million pounds indicated in a consensus projection, partly thanks to robust performance in commercial lines. Yet Aviva Investors' assets under management fell 13% in the first half to 232 billion pounds on account of declining markets. Aviva said it would pay an interim dividend of 10.3 pence, in keeping with its full-year 2022 dividend guidance of about 31.0 pence. Cevian said Aviva has the scale to make larger dividend payouts in future.
Toshiba Corp. (TOSYY) on Wednesday posted an unexpected 4.8 billion yen ($35.6 million) operating loss in the April-June first quarter amid a worldwide chip shortage and a sharp hike in raw materials prices. The latter factor pushed down its operating earnings by 9.4 billion yen, while the chip shortage contributed to a roughly 3 billion yen loss. Yet Toshiba upheld its profit forecast for the year ending March at 170 billion yen, a 7% year-on-year gain. The company picked Bain Capital (BCSF), CVC Capital Partners (CVC), Brookfield Asset Management (BAM), and a consortium involving state-backed Japan Investment Corp. and private equity firm Japan Industrial Partners to proceed to a second bidding round. With a buyout, the firm could realize a market valuation of up to $22 billion, according to sources. Tensions between Toshiba and its investors peaked last year when a shareholder-commissioned investigation found the company's managers had colluded with Japan's trade ministry to bar overseas investors from gaining clout at its 2020 shareholder meeting. Shareholders this year jettisoned management-backed plans to divide the company, spurring Toshiba to restart a strategic review.
Florida Gov. Ron DeSantis wants pension plans in conservative U.S. states to fight shareholder environmental, social, and governance (ESG) resolutions at corporate shareholder meetings. State and local defined-benefit pension plans have more than $5.7 trillion in assets under management. Forming a bloc of such plans is difficult, as Republican-controlled state retirement systems have voted differently on the same issue and have oversight structures that limit efforts to influence voting. Public funds also rarely invest the most in U.S. companies. Although DeSantis' office has said he intends to propose legislation to counter ESG factors in investing, no details on how that might impact proxy votes are forthcoming. Past voting patterns suggest the governor's theory has credence, with Insightia noting Florida's State Board of Administration (SBA) and Texas' Teacher Retirement System were less likely to support ESG shareholder resolutions versus funds in some Democrat-led states. Yet both systems nevertheless supported the bulk of ESG resolutions this year. Most shareholder ESG proposals are not binding, but some have attracted considerable interest at corporate annual meetings. Both the Florida and Texas pension funds sided with ESG-supportive investors in urging Costco Wholesale Corp. (COST) to establish emission-reduction targets and asking McDonald's Corp. (MCD) to review its effects on issues like racial inequality. Conversely, SBA supported and Texas opposed a resolution requesting Nextera Energy Inc. (NEE) publish directors' gender and race or ethnicity. Richard Fields at Reynolds Associates says such divergence indicates the funds would have to radically change their approach to proxy voting to support DeSantis' agenda. "Part of the challenge is pension funds are managed a little bit differently in different places," adds New York City Comptroller Brad Lander.
Parkland Corp. (PKIUF) CEO Bob Espey suggested the company could buy Suncor Energy's (SU) retail business. Last month Suncor announced its retail business would be subjected to a strategic review, which could lead to the sale of some 1,500 Petro-Canada gas stations. The review is in line with a settlement Suncor made with Elliott Investment Management. The company also enlarged its board at the request of Elliott Investment. "If we can find good value, we'd be delighted to welcome those assets into the Parkland family," Espey said. "[The sale] is still in speculation." He added that Parkland actively examines assets that come on sale in the marketplace. Credit Suisse (CS) analyst Manav Gupta said if Suncor's retail assets were to be sold as one whole deal, the sale could total $11.2 billion in pre-tax proceeds ($8.9 billion after tax).
In a letter to the board of Kindred Group PLC, Corvex Management LP's Keith Meister said the firm now owns more than 15% of the company's outstanding shares and is its largest shareholder. "We are excited to be a significant investor in the company and believe that Kindred is worth substantially more than the value implied by the current trading price for Kindred's shares," Meister wrote. "As Kindred's largest shareholder, we intend to formally express our interest in participating in the Nomination Committee, which we understand will be formed at or shortly after the end of August. We look forward to working on the newly comprised Nomination Committee with representatives of Kindred's other largest shareholders and Kindred Chairman Evert Carlsson. In our view, the committee should seek to nominate directors with a mandate to maximize long-term, risk-adjusted value for all Kindred shareholders." He added that "we continue to believe Kindred should study all potential strategic alternatives, including a sale of the company. A board that is fully informed and aligned with shareholder interests will be best positioned to weigh potential alternatives against the company's status quo business plan."
A new report from SPAC Insider indicates that nearly half of special purpose acquisition companies (SPACs) still seeking a merger partner could be forced into liquidation under proposed rules from the U.S. Securities and Exchange Commission (SEC). The SEC rules would require a SPAC to announce a deal within 18 months from the date of its IPO and close within 24 months to avoid falling under the Investment Company Act of 1940. "As investment companies, their activities would be severely restricted and subject to very burdensome compliance requirements," said Kristi Marvin, founder of SPAC Insider and author of the report. "Those requirements can get quite expensive, and most SPACs do not have the funds available to pay for it." She noted that "liquidating would be the most palatable and likely solution in that situation." SPAC Insider says there are 141 SPACs that have been searching for a partner for 18 months, and that figure will jump to 256, or 44% of the 576 SPACs seeking a merger partner, by September. Ten SPACs that went public in 2020 and 2021 have been liquidated so far, with the biggest being Bill Ackman's Pershing Square Tontine Holdings. Ackman cited the uncertainty around the SEC's proposal as one of the reasons for the liquidation. With $80.6 billion in capital up for potential liquidation, Marvin said, "It's hard to say how much of a risk this rule is to SPACs, but it's still a risk with consequences. Either way, we're at the top of the ferris wheel right now and it's either going to be a pleasant ride down or shut the eyes and hold on tight."
Nielsen Holdings plc (NLSN) has announced that the court meeting and the special meeting of its shareholders due to be held today have been postponed. The purpose of the meetings was to consider and vote on proposals to give effect to the transaction contemplated by the previously announced definitive agreement for the company to be acquired by a private equity consortium composed of Evergreen Coast Capital Corp., an affiliate of Elliott Investment Management L.P., and Brookfield Business Partners L.P. together with other institutional partners. The meetings have been postponed to allow the consortium to seek to finalize a preliminary agreement with The WindAcre Partnership LLC, the beneficial owner of approximately 27% of Nielsen's ordinary shares. Under the preliminary agreement, WindAcre would join the consortium with respect to a portion of its shares and would receive $28 per share—the same price to be paid to all other shareholders—for its remaining shares. Although there can be no assurance that the preliminary agreement will be finalized, assuming it is finalized, the company will supplement its proxy statement to reflect the terms of the agreement between the consortium and WindAcre and will present the transaction to shareholders for approval as expeditiously as possible. Nielsen and the consortium remain bound by the terms of the definitive agreement to give effect to the proposed transaction, and Nielsen's board of directors has made no change to its recommendation that its shareholders vote in favor of all of the proposals at the meetings to approve and give effect to the proposed transaction.
Indaba Capital Management L.P., which is the largest shareholder of Tabula Rasa HealthCare Inc. (TRHC) with an ownership interest of approximately 25% of the company’s outstanding shares, today issued an open letter to the independent members of the company’s board of directors: Samira K. Beckwith, Jan Berger, MD, MJ, Dennis K. Helling, PharmD, ScD, Kathy O’Brien, Michael Purcell, and Rear Admiral Pamela Schweitzer, PharmD (retired). The letter states: "As you know, Indaba is Tabula Rasa’s largest shareholder by a significant margin and holds more than seven times the number of shares owned by the current Board. While we prefer to have a constructive, private dialogue with you, your apparent disregard for sound corporate governance and unwillingness to substantively engage with us forces us to once again make our concerns public. Today, we are writing to demand answers to the following questions: Why are you refusing to directly engage with us despite our substantial shareholdings, valid concerns, and willingness to collaborate on a necessary Board refresh? Why did you feel it was appropriate to dilute shareholders in order to issue more equity to Chief Executive Officer and Chairman Dr. Calvin H. Knowlton, President and Director Dr. Orsula V. Knowlton and their relatives—especially given shareholders’ resounding 'withhold' votes against the Knowltons and opposition to the executive compensation proposal at the 2022 Annual Meeting of Shareholders? Why are you unwilling to reduce the boardroom influence of the husband-and-wife management team by demanding the resignations of the Knowltons from the Board? You approved a term sheet from Indaba that provided for their resignations earlier in the summer. While Mr. Tunstall’s and Ms. Beckwith’s apparent intransigence can be explained by their conflicts and historical interlocks to the Knowltons, we cannot understand why the rest of you continue to ignore the highly problematic governance issues plaguing the Company today." The letter goes on to question the board members' independence.
Trillium Asset Management has been pushing companies more broadly and directly to empower workers over the past year. One of the oldest socially responsible investment firms in the world, Trillium has been led by chief advocacy officer Jonas Kron in its effort to press companies on work-related issues such as gay rights, paid leave, and abortion benefits. Trillium has engaged several companies, including Starbucks (SBUX), The New York Times (NYT), EssilorLuxottica (ESLOY), Mondelez International (MDLZ), and Deere (DE). Some campaigns have been more successful than others. For example, Mondelez and Deere have reached agreements with unions, but Starbucks continues to resist unionization. Kron describes the open letters to companies as the opening salvo in a sustained campaign. Labor laws in the U.S. heavily favor management, he says, but "markets function better with a level playing field."
MDU Resources Group (MDU) is confident in its current strategy, the company said on Tuesday, after Corvex Management unveiled a nearly 5% stake in the U.S. utility. Corvex, which is controlled by Keith Meister, said in a regulatory filing late on Monday that it bought shares in MDU as it believes the stock is undervalued. Corvex also wants to discuss strategic options with the board and management and other measures to improve the company's valuation. Last week, MDU said it would separate its construction materials unit, Knife River Corporation, into a separate public company, with shares in the new entity to be distributed to MDU shareholders. The company's stock price has dropped 10% in the last 52 weeks but investors reacted positively to news of the planned separation. In the Monday filing, Corvex called the plan to spin off Knife River a "positive first step." But Corvex also said it plans to engage with the company about additional strategic alternatives at MDU to enhance the earnings potential of the company. An MDU spokesperson said the company was aware of Corvex's recent investment in the company and while it welcomed engagement from shareholders, it was confident in its current strategic direction. Corvex has been a regular investor in U.S. utilities in recent years. In October 2020, Corvex pushed Exelon Corp. (EXC) to separate its regulated and unregulated power businesses, a move Exelon completed in February.
Argo Group International Holdings (ARGO) ceded a board seat to its No. 1 investor, Voce Capital Management owner J. Daniel Plants, mere months after announcing a strategic review that could include a sale of the insurer. Argo said its board now constitutes nine directors, and Plants will serve on the strategic review and human resources committees. Argo CEO and Executive Chairman Thomas Bradley cited Plants' investor perspective and unique understanding of Argo as benefits, while Plants said Argo is "deeply undervalued" and that he backs the strategic review. Voce controls 9.5% of Argo's shares and has been a shareholder since 2018. Plants has previously lobbied Argo to revamp the board, and in 2020 the company added three new directors. Neither Plants nor Voce signed a cooperation agreement for Plants to join the board. This is the second time Voce has gained a board seat without forming this kind of agreement where the company generally makes concessions to the investor in exchange for a pledge of support. Argo's share price has slipped 42% in the last year, and in April the company said the board would weigh various options, including a potential sale, merger, or other transaction.
Richemont (CFRUY) has requested that shareholders oppose a board candidate supported by investor Bluebell Capital Partners ahead of its Sept. 7 annual meeting. The fund manager hopes to have co-founder and former Bulgari (LVMH) head Francesco Trapani elected to the board, and it also said it wants Richemont to focus on its jewelry and watches business, suggesting it could double its share price. However, Richemont told shareholders, "After careful consideration, the board recommends to vote against the designation of Bluebell's candidate as representative of the holders of 'A' shares, and against the election of that person to the board." The group has instead forwarded independent director Wendy Luhabe to be the shareholders' board representative. Bluebell has also expressed a wish to boost the number of board members at Richemont to six and to have an equal number of representatives of its "A" and "B" investors on the board. Richemont has further recommended that investors vote against the additional proposed revisions to the company's articles.
Luxury group Richemont (CFRUY) for the first time acknowledged and agreed that "A" shareholders should have the right to be represented on the board, according to Bluebell joint CEO Guiseppe Bivona. Bluebell has been invested in Richemont for a year and a half and has a stake worth 105 million Swiss francs ($109 million) in the world's second biggest luxury company. The investor wants Richemont to concentrate on jewelry and watches, saying that could double its share price in the medium term. "That is what we have been demanding, this is a major win for the market," said Bivona. Bluebell has been seeking to put its co-founder Francesco Trapani on the board of Richemont. The company's proposal to have existing independent director Wendy Luhabe instead of Trapani, a former head of Italian luxury label Bulgari, as representative of "A" shareholders was not acceptable or credible, Bivona said. Kepler Cheuvreux analyst Jon Cox said Bluebell faces an uphill battle to change Richemont due to Chairman Johann Rupert, who owns all the non-listed "B" shares in the company, which represents 9.1% of the capital, but 50% of the voting rights. "Ultimately Johann Rupert is in charge of the show," Cox said.
Shareholders of UK investment trust Trian Investors 1 Ltd have voted to remove Chris Sherwell as the firm's chair after criticism from investors over various governance issues. Glass Lewis had backed a call by shareholders Global Value Fund, Invesco (IVZ), Janus Henderson (JHG), and Pelham, which together hold around 40% of TI1 shares, to remove Sherwell. Shareholders also voted at an extraordinary general meeting Friday to add Robert Legget, one of the investors' choice of directors, to the board, TI1 said in a statement on Monday. However, it did not say who the trust's new chair would be. The investors had expressed concerns about recent changes to TI1's strategy on the number and type of its investments, proposals to turn the trust into a special purpose acquisition company, and about its share price performance. TI1's investment management strategy is carried out by Nelson Peltz's Trian Fund Management. At Friday's meeting, TI1 shareholders also voted to keep Simon Holden and Anita Rival as directors. Institutional Shareholder Services had backed the removal of Rival, but was against voting out Sherwell.
Aviva (AVVIY) shareholders are braced to see whether the insurance firm can regain some momentum this week after its share price has stalled in recent months to trade no higher than 30 years ago. Aviva is scheduled to give an update on its first half results on Wednesday. Equity analysts at AJ Bell said that breathing life back into its flagging share price will be near the top of the agenda for Chief Executive Amanda Blanc as she updates shareholders. "Blanc is trying to fix that [share price], but she bore the brunt of shareholder frustration – and some unpleasant, neanderthal behaviour – at the company's Annual General Meeting in May," said Russ Mould, AJ Bell Investment director. "Nor is that the only pressure point, since Cevian Capital is still on the shareholder register. The Anglo-Swedish firm has been pushing Aviva for even deeper cost cuts and greater cash returns than those announced by the FTSE 100 firm." Investor and analyst eyes will therefore be trained on updates to Aviva's plans to slash £400 million off the cost base between 2018 and 2023. Cevian has pushed for the plans to go further with £500 million trimmed off costs by 2023.
Western Digital Corp. (WDC) is mulling a breakup of its hard disk drive (HDD) and flash businesses in the midst of a volatile macroeconomic environment. The company recently posted lower fourth-quarter sales and profit compared with the same period last year, due to a decline in its HDD business. Western Digital's sales and adjusted earnings guidance came up short of analysts' expectations, although shares rebounded 1.9% Monday after closing down 5.7% at $47.09 on Friday. The stock has decreased 26.4% this year, versus the S&P 500 index's 12.2% decline. Earlier this year Western Digital announced it would consider a breakup as part of a settlement with Elliott Management Corp., while in June the company said it is weighing potential strategic alternatives such as splitting its flash and HDD businesses. Prior to the issuance of Western Digital's fourth-quarter report, Stifel (SF) said turbulence could expedite the breakup, which the investment bank and Elliott view as beneficial. Stifel reiterated this in a note following the company's results, adding that Western Digital's outlook was more depressed than it had anticipated. "In both HDD and flash, the problems are primarily in the Client and Consumer segments, and we think it will take a few quarters before a correction is complete," wrote Stifel analyst Patrick Ho. Stifel downgraded its Western Digital price target to $70 from $77 but maintained its buy rating. During a conference call to discuss quarterly results, Western Digital CEO David Goeckeler said the company would not be answering any questions on its strategic review, raising the "ongoing nature and confidentiality" of the process, adding that it will provide updates in the future, "as appropriate." Mizuho Securities (MFG) underscored headwinds around NAND flash, noting that a breakup of Western Digital would be a positive. "Despite SIGNIFICANT idiosyncratic NAND headwinds, we believe there is potential to unlock value via an activist shareholder and NAND separation," wrote Mizuho Securities analyst Vijay Rakesh.
A group of rebel shareholders has replaced the chairman of a London fund managed by Nelson Peltz. However, the victory for the rebels leaves the fund with a divided investor base and uncertain future, says Neil Unmack.
MDU Resources (MDU) rose 3.3% in after hours trading after Corvex Management disclosed a 4.9% stake in the company. In a 13-D filing, Corvex praised MDU for its decision last week to separate Knife River through a tax-free spinoff to shareholders. MDU on Thursday announced it plans to separate its Knife River construction materials business from the company, resulting in two independent, publicly traded companies. Corvex said it intends to enter talks with MDU's board and management in regard to additional strategic alternatives and plans to enhance the earnings potential to levels "commensurate" with industry peers.
ValueAct Capital Partners said on Tuesday it has built an 8.7% stake in cybersecurity software provider Trend Micro (TMICY), driving shares of the Tokyo-listed firm more than 9% higher. “We believe the growth acceleration from the SaaS (software as a service) products they have launched in recent years is just the beginning, and that Trend Micro can join the ranks of other great enterprise software company transformations,” ValueAct Partner Alex Baum said. “We have enjoyed getting to know Trend Micro's management team and look forward to collaborating with them.” ValueAct is among a small number of U.S. firms that have invested heavily in Japanese companies and have tried to work with management and the boards to make changes.
AB Value Management LLC and Bradley L. Radoff, who own approximately 17.6% of the outstanding shares of Rocky Mountain Chocolate Factory (RMCF), have announced that Institutional Shareholder Services (ISS) has recommended the company's stockholders vote on the BLUE proxy card to elect the AB Value-Radoff Group's independent nominee. In a report, ISS affirmed the case for additional boardroom change at Rocky Mountain and agreed with the AB Value-Radoff Group's concerns regarding the incumbent board's recent behavior. ISS stated in the report, among other things, “The board's backhanded endorsement of the dissident's recommendation that it add a female director with franchising experience, along with the fact that the company still has some way to go to overcome the operational issues that led to last year's contest, underscore that change is preferable to the status quo.”
It added, “In choosing to expand the board and appoint a seventh board member after the meeting, the board is depriving shareholders of the opportunity to vote on a director's candidacy in a contested election.” The AB Value-Radoff Group commented: “We are pleased that ISS has recognized the need for change in Rocky Mountain's boardroom following continued financial underperformance and abysmal corporate governance. .... We strongly believe the best path to preserving and maximizing stockholder value at Rocky Mountain is by adding one of our proposed candidates to the board. As we have publicly reiterated already, we remain willing to work with the board to reach a good faith settlement despite its recent unprofessional behavior.”
A request by Ben & Jerry's to block parent company Unilever PLC's (UL) sale of the ice-cream brand's Israeli business is scheduled to be heard Aug. 8 by a New York court in what attorneys are calling a "first-of-its-kind case." At the core of the case is what powers Ben & Jerry's independent board of directors, a unique corporate-governance arrangement Unilever granted when purchasing the brand in 2000, has in practice. Unilever agreed to permit Ben & Jerry's to have a self-perpetuating board with nine independent members and two seats given to Unilever nominees. The brand's board is responsible for the ice-cream maker's social mission, while Unilever has responsibility over operational matters. In July, the board's independent members sued Unilever in the U.S. District Court in Manhattan seeking to block the sale of Ben & Jerry's Israeli business to a licensee.
Taiwan-based Apple (AAPL) supplier Catcher Technology (2474) is fighting international investor Argyle Street Management over its $4.2 billion cash reserves. Sources say Hong Kong-based Argyle is pushing the company to improve its governance and return some of its cash pile to investors. Argyle owns about 1% of Catcher's shares and joins a number of foreign institutional shareholders. Global investor interest in Taiwan has grown in recent years, with foreign direct investment rising 275% to a 15-year peak of $8 billion in the first half of this year. Yet the island nation's tech-reliant stock market has suffered following a sell-off by global funds and concerns of a recession in the U.S. Two people said Argyle has claimed Catcher's management has been "hoarding cash" in order to support a "bloated" executive hierarchy. The company has a market capitalization of around $4 billion on Taiwan's stock exchange, and is run by three brothers of the Hung family, who are also board directors. Argyle alleges that, despite Catcher's divestment of one of its primary revenue generators in 2020, the company has paid a "low" dividend of NT$10-NT$12 per share for the past five years, totaling NT$42.95 billion ($1.43 billion), with plans to maintain that dividend level for the next three years. The Hung family owns about 15% of Catcher shares, while foreign institutions control about 43%. Catcher said it was "currently in the stage of business transformation" and was diversifying into manufacturing automotive parts and medical technology. "The cash position we kept is mainly for investment opportunities," the company said. "We pay at least 50% of earnings as cash dividends. The cash dividends we've paid each year over the past five years is literally equivalent to our paid-in capital, essentially above market average." Members of Catcher's research and development team were part of a group that Taiwan prosecutors charged with breach of trust and taking commercial secrets for use overseas in July. At the time, Catcher stated that it "co-operates with the investigation and follows judicial procedures and judgments."
The Malta Financial Services Authority (MFSA) launched its Corporate Governance Code for MFSA-authorized entities on Friday. The regulatory authority for financial services in Malta said that the code provides a list of guiding principles, complemented with supporting provisions, and that application is based on the principle of proportionality. "These principles are designed to enhance the legal, institutional, and regulatory framework for good governance in the Maltese financial services sector. They thus complement the current provisions already in force in the legal and regulatory framework," it said. Head of Strategy, Policy, and Innovation Clare Farrugia said that the authority considers good corporate governance as "being fundamental for investor protection, market integrity, and financial soundness."
Kris Smith, interim CEO of Canada's Suncor Energy (SU), announced a mandate to remedy the oil-producing company's poor safety and operating performance, even as the board seeks a permanent CEO. On a quarterly conference call, he mentioned plans to revamp the company's processes, noting, "We can't stand still. I have the full support of the board to drive the changes necessary." Former CEO Mark Little resigned after the latest in a series of deaths at Suncor sites, on top of operational problems dogging production. Smith said Suncor had already evaluated the problems at its oil sands mining sites, and is concentrating on risks including contact between vehicles and work around water. "We're clear on what we need to do to improve our safety performance," he explained. "We do not need more diagnosis, but what we do need to do is execute." Suncor reached a deal with shareholder Elliott Investment Management last month, appointing three new independent directors and initiating a review of its fuel retail business. Company shares inched up, but trailed bigger gains by competitors. According to Smith, Suncor will engage more with front-line employees about the necessary changes. The company has previously said it would invest in technology to prevent collisions of mobile equipment and better deal with worker fatigue. Meanwhile, Suncor lowered its full-year production guidance on Thursday, and Smith said operational problems at Base Plant are persisting into the current third quarter. Still, the company saw its second-quarter profit more than quadruple on Thursday, thanks to a rebound in commodity prices.
All companies listed on the S&P 500 stock index now have at least one ethnically or racially diverse director, according to Institutional Shareholder Services. Among Russell 3000 companies, 90% have a director who identifies as a minority this year, up from 73% last year. Women account for a third of S&P 500 directors, according to executive search and leadership consulting firm Spencer Stuart. Women made up nearly half of all incoming independent directors on S&P 500 boards. Companies are facing increasing pressure from BlackRock (BLK), Vanguard, and State Street (STT) on board diversity. The updated proxy voting policies from the big asset managers call for improvement in board diversity and disclosure regarding the backgrounds of directors. Meanwhile, a provision in the House's defense authorization bill would require disclosure of board diversity metrics. Board diversity is also on the spring agenda of the U.S. Securities and Exchange Commission.
Tesla Inc. (TSLA) shareholders voted for board recommendations on most issues at the company's annual meeting, including approving a stock split, re-electing directors, while rejecting proposals focused on environment and governance. According to preliminary tallies presented at the annual shareholder meeting in Austin, votes on three of the 13 proposals did not follow board recommendations. Over board opposition, shareholders approved an advisory proposal that would increase investors' ability to nominate board members. Two other board proposals—reducing directors' terms to two years and eliminating supermajority requirements—failed to receive the necessary supermajorities to pass.
PayPal Holdings (PYPL) delivered a packed earnings report Tuesday, announcing a new chief financial officer, buyback authorization, and cost-savings program, while also confirming that Elliott Management Corp. has taken a stake in the company. Additionally, the company topped expectations with its second-quarter financial results while delivering a mixed update on guidance for the full year. PayPal shares jumped 11% in after-hours trading Tuesday, after rocketing to their best day in two years last week amid reports that Elliott had taken a stake in the business. Elliott confirmed the involvement in Tuesday's report, just as the investor did Monday with Pinterest (PINS) as it reported earnings. “As one of PayPal's largest investors, with an approximately $2 billion investment, Elliott strongly believes in the value proposition at PayPal,” Elliott Managing Partner Jesse Cohn said in a statement included in PayPal's release. “PayPal has an unmatched and industry-leading footprint across its payments businesses and a right to win over the near and long term.” He added that PayPal's report “highlights a number of steps that have been underway and are being initiated to help realize the significant value opportunity” in the business. PayPal Chief Executive Dan Schulman shared on PayPal's earnings call that his team and the Elliott team were “completely aligned in our mutual goal to maximize shareholder value and we are substantially aligned on the areas of focus for achieving our objectives.”
Catalyst Biosciences Inc. (CBIO) has announced that proxy advisory firms Institutional Shareholder Services Inc. and Glass Lewis have recommended that Catalyst stockholders vote for all of the company’s nominees on the white proxy card in advance of Catalyst’s upcoming 2022 Annual Meeting of Stockholders, scheduled to be held on August 15, 2022. In its report, ISS specifically noted: “In light of the board's success at selling the complement portfolio for more than the market's expectations, and its commitment to make an initial cash distribution to shareholders following the resolution of the dissident's proxy contest and litigation, shareholders appear to be best served by encouraging the board to continue pursuing its existing plan.” Further, “[T]he presence on the board of two independent directors appointed as part of a settlement with the dissident in 2020 (one of whom, [Dr. Geoffrey] Ling, was selected by the dissident), and the addition of a shareholder representative as an observer, appear to be sufficient safeguards to allow the incumbent directors to proceed with their stated plan.” In addition, “[I]t is preferable to allow the incumbent board an opportunity to continue with its plan to return available cash and attempt to monetize remaining assets over the next year.” In its report, Glass Lewis specifically noted: “Given that the board has already implemented (or committed to substantially implement) the Dissident’s core suggestions for the Company, we believe there is insufficient basis to support the Dissident’s campaign for further board seats at this time.” Further, “We also agree with the board that the Dissident Nominees lack both relevant industry-specific experience and sufficient independence from the Dissident.” In addition, “[B]ased on the biographical information presented by the Dissident, it’s unclear to us whether the Dissident Nominees have any substantive experience at other firms that could be viewed as a close parallel to the Company’s current situation (i.e., situations involving the successful divestment of assets and a significant return of capital to investors).”
Institutional Shareholders Services (ISS) said Wednesday that Monro (MNRO) shareholders should vote against all five of the auto service company's directors who are up for election after the board failed to follow investor wishes and restructure its share classes. ISS said the board "demonstrated insufficient responsiveness to last year's majority-supported shareholder proposal" and that "withholding support from all director nominees is warranted." Monro's board has nine members, and five are up for election this year on Aug. 16. Hedge fund Ides Capital, which has been pushing the company for years to make changes, submitted last year's shareholder proposal to recapitalize the share classes so that each share would have one vote in each voting situation. Eighty-eight percent of common shareholders supported the proposal at the 2021 annual meeting. While the board "acknowledged the results ... and engaged with shareholders on the issue," ISS wrote that the board did not act because it felt it did not have the "right or power to unilaterally 'recapitalize' its equity capital structure to eliminate the Class C Preferred Stock." All Class C shares are owned by investment banker Peter Solomon, who sits on the board and is one of the company's top five shareholders, after BlackRock (BLK), T. Rowe Price (TROW), Vanguard, and Wasatch Advisors.
Shares in PayPal Holdings (PYPL) jumped on Wednesday after the company said it was open to working with Elliott Management. PayPal the day prior confirmed that Elliott had taken a $2 billion stake in the company. On an earnings call with analysts, PayPal said the company and Elliott Management "are aligned with the mutual goal of maximizing shareholder value, with the initial focus being improved profitability and increased return of capital." PayPal has entered into an information sharing agreement with the hedge fund. PayPal also announced the appointment of a new chief financial officer (CFO), Blake Jorgenson, former executive vice president of special projects at video game company Electronic Arts (EA). "With more reasonable top-line guidance, a new well-regarded CFO, and Elliott helping mange cost cutting initiatives/capital allocation, PYPL stock now finally appears on the road to recovery," Deutsche Bank analyst Bryan Keane said in a note to clients.
HSBC Holdings (HSBC) seemed to make concessions at an informal meeting with Hong Kong shareholders Tuesday in a bid to appease shareholder Ping An (PNGAY) but is unlikely to break itself up. The meeting was prompted by renewed calls from the insurance conglomerate, HSBC's largest shareholder, to break up the bank. HSBC's leadership team, including chief executive Noel Quinn and chair Mark Tucker, gathered in an emergency meeting with shareholders. Gary Greenwood, a banking analyst at Shore Capital, said it was “unlikely” that an activist investor could carry enough weight to split up the bank, “unless Ping An can get enough people on side” to push for a shareholder resolution. Yet, when confronted by 1,000 investors in Hong Kong yesterday, the bank's chair tried to ameliorate their concerns by saying he understood how much “distress and pain” cancellation of the dividend in 2020 caused investors. “The board has a clear responsibility to protect and grow shareholder value, and the work to date suggests that the separation structures would not be consistent with that and would destroy value,” he said.
The special purpose acquisition company (SPAC) boom has stopped, with CNBC calculations of SPAC Research data showing not one SPAC was issued last month. Investors have shunned speculative high-growth equities lacking proven track records after many firms fell short of forecasts. Meanwhile, regulators began investigating transactions that draw investors with forward-looking statements after a surge in 2020 and 2021 created over 600 SPACs seeking targets before that surge ended. "I think that was a once-in-a-lifetime experience just like during the internet bubble," explained University of Florida finance professor Jay Ritter. "A year ago, the whole market was overpaying and now we have a reset. Giving a valuation of $500 million on a zero revenue company...those days are gone." The absurdity of SPAC valuations at the height of the boom was illustrated by Nikola's (NKLA) recently announced $144 million all-stock purchase of Romeo Power (RMO), representing about 10% of Romeo Power's valuation when it merged with a SPAC hardly two years ago. Accompanying the drying-up of issuances is an increase in liquidations amid problems with finding suitable companies. Three deals were tabled in July, including Bill Ackman's $4 billion Pershing Square Tontine (PSTH), raising total liquidations to 10 this year. Only one SPAC was liquidated last year. "We expect the acquisition landscape to remain highly competitive, and caution that many SPACs are likely to be pressured on time to find suitable targets," said Barclays' (BCS) Venu Krishna.
Unilever (UL) has ceased paying Ben & Jerry’s independent board members, the latest escalation of a dispute over the brand’s attempt to stop selling its products in the occupied Palestinian territories. The global consumer goods group stopped the compensation that was due to the five independent members of Ben & Jerry’s board last month, said an insider. The ice-cream maker retained its own independent board under an unusual agreement following its takeover by Unilever in 2000. The five independent members are not appointed by the parent group and make decisions in specified areas. Two Unilever appointees, including Ben & Jerry’s chief executive, also sit on the board. The effort by Ben & Jerry’s to pull out of Israeli settlements sparked a number of U.S. pension funds to divest from Unilever in protest, while Nelson Peltz, whose Trian fund now owns a stake in Unilever, lobbied against the move.
Southwest Gas Holdings Inc. (SWX) will continue as a standalone company, but will still explore options for its Centuri and MountainWest Pipeline units. Southwest Gas also stated that director Jose Cardenas should leave the board soon, with his replacement appointed as part of an agreement with investor Carl Icahn. These moves follow the utility owner's agreement to start a strategic review as part of the settlement with Icahn, who also got to name three directors, as well as one more if Southwest Gas failed to spin off Centuri within 90 days. After concluding an operational review, Southwest Gas had decided not to sell itself, though it will explore options for Centuri and a sale of MountainWest. Company shares plunged 13% to $76.15 at 9:46 a.m. in New York, the biggest intraday decrease since March 23, 2020.
Rocky Mountain Chocolate Factory Inc. (RMCF) said AB Value and Bradley Radoff Group has failed to inform RMCF stockholders about a material change to the employment status of board candidate Mary Bradley. She said in her interview with the board that she is no longer employed by Planet Fitness Inc. (PLNT), while AB Value's proxy materials list her as a current Planet Fitness employee. RMCF has undertaken this disclosure since AB Value has failed to do so in a timely manner. Moreover, RMCF is perplexed by a recent press release from AB Value, which failed to refer to Bradley at all, and complained that RMCF has not responded to a fabricated proposal with a last-minute nominee who was not included in any of AB Value's previous nomination or proxy materials.
Former hedge fund manager Grant Wilson is pushing for a change in leadership at mining company TNG (TNGZF). Wilson, who owns 8.82% of TNG, is trying to force the Perth-based company to hold a general meeting and have shareholders vote on removing its CEO and chairman. Wilson is backed by Warren and Marilyn Brown, who have a 6.16% stake in TNG. The Browns appear to have been behind a "highly disruptive" shareholder campaign against the company in 2018, according to the Australian Financial Review. Shareholders are primarily concerned about the slow pace of the Mount Peake Vanadium Project, which is expected to become a top 10 global producer of vanadium. Wilson wants to take over as CEO, and have Anthony Robinson installed as chairman. TNG has responded by urging shareholders to vote against the "removal of three of its four directors."
AB Value Management LLC and Bradley L. Radoff, who own approximately 17.6% of the outstanding shares of Rocky Mountain Chocolate Factory Inc. (RMCF), have issued a statement, saying, “We are extremely dismayed that the Board attempted to derail an agreed upon settlement – with the Company’s largest stockholder – by issuing an unprecedented press release rather than attempt to have a private conversation with us. The Board chose to set a new standard for low-road tactics in an election contest. We hope the Board finally begins to reflect on its obligations and shortcomings. We recently sent the Board a private communication to make it aware of concerning information pertaining to previously undisclosed matters about the past employment of the Chair of the Audit Committee. We cannot help but question if yesterday’s public missive was retaliation for us raising justified concerns about the leader of a key committee that is responsible for the Company’s financial integrity. Despite the Board’s scorched earth tactics, we still honored its request for a ‘good faith proposal’ last night and are now awaiting a response. We put forth a new highly qualified female director candidate with corporate governance acumen, food sector expertise and franchise experience. Our new candidate – who is completely unaffiliated with our group and respective organizations – also has public company board experience and strong knowledge of the U.S. and Canadian consumer markets. Assuming the Board will add this objectively stellar candidate, we are ready to agree to the other settlement terms that our group previously accepted. In our view, it would only validate the need for sweeping change atop Rocky Mountain if the Board continues to make a mockery of shareholder democracy and rejects yet another strong female candidate.”
Ken Lui, an HSBC Holdings (HSBC) shareholder and founder of the Hong Kong Investor and Entrepreneur Institute, is convening a group to push for the spinoff of the lender's Asia business, adding to pressure on the bank ahead of a meeting with investors on Tuesday. Lui is seeking to build on an effort from 2020 when he gathered about 3,000 local investors to protest HSBC's move to stop paying dividends as the pandemic erupted. “We are trying to engage the same group of people and also, of course, we welcome new shareholders as well,” he said. Lui's efforts back then, as the convener of HSBC Shareholders Alliance, were ultimately unsuccessful as the bank heeded calls by UK regulators to skip dividends. He's now getting behind a plan by HSBC's largest single investor, Ping An Insurance Group (PNGAY), to split up the lender. HSBC on Monday pledged to return to paying quarterly dividends next year as it seeks to head off the call to split up. The bank's Chief Financial Officer Ewen Stevenson also said it's hard to find value for shareholders in a potential split. Lui said a split would make it easier for HSBC to navigate the rising tension between China and the West. “On one hand, in Asia they have to live by the rules and regulations in China, but in the UK they have to face regulations from the UK government,” he said. “This creates risk for both HSBC and the shareholders.” So far, none of HSBC's biggest shareholders have come out publicly in support of Ping An's proposal.
HSBC Holdings' (HSBC) bosses met retail investors in Hong Kong on Tuesday, telling them that a strategy to operate as a unified bank is better for its future than a break-up mooted by top shareholder Ping An Insurance (PNGAY). At a meeting attended by hundreds of shareholders, management of the bank were quizzed by investors on its strategy for dividends and growth. "Our strategy which is now two and half years into execution should put the bank on the path to deliver returns in 2023 at a level we have not achieved in the last 10 years," Chair Mark Tucker said. "This return should help drive and increase the share price and have a positive impact on the dividend." The meeting was held a day after HSBC rejected the break-up call. Ping An, which has been building a stake in HSBC since 2017, owned 8.23% of the bank as of early February. Hong Kong retail shareholders have been particularly unhappy about HSBC scrapping its dividend in 2020 during the pandemic, following a request to lenders by the Bank of England. A Hong Kong politician has even urged HSBC to appoint Ping An's representatives to its board and move its headquarters back to Hong Kong. "We do worry if the Bank of England will order HSBC to suspend dividends again in the next wave of the pandemic," Christine Fong, a district council member in Hong Kong who was set to attend the meeting with HSBC, said. "If HSBC returns to Hong Kong, it will be less affected by UK political factors and regulation." In 2016, HSBC decided to keep its headquarters in London, rejecting the option of shifting it back to Hong Kong after a review.
Pasithea Therapeutics (KTTA) is calling on shareholders to reject the Camac Group's effort to take over the company. In a letter to stockholders, Pasithea said it met with the Camac Group once it began acquiring shares in March, and the Camac Group demanded a controlling stake of the board. The biotechnology company said the Camac Group has failed to articulate any clear strategy. The letter outlines Pasithea's response to the consent solicitation to call a special meeting of stockholders, as well as its commitment to advancing its potentially groundbreaking therapies to grow stockholder value. Meanwhile, Pasithea's board urged stockholders to reject the "misguided and self-serving" attempt to undermine the company's progress and destroy its upside potential. Pasithea said the Camac Group's claim that its directors were entrenched was ludicrous, considering its longest-tenured directors have only served on the board for approximately two years and the company is only two years old.
Glass Lewis & Co. and Institutional Shareholder Services (ISS) are urging Tesla Inc. (TSLA) investors to oppose the re-election of two board directors, as well as to vote for six out of eight shareholder proposals. The electric-car maker's general annual meeting is Aug. 4. Tesla is asking shareholders to re-elect Ira Ehrenpreis and Kathleen Wilson-Thompson this year, but ISS and Glass Lewis are against it because as members of the company's nominating and governance committee, they did not implement a shareholder proposal that most shareholders approved in 2021. The proposal recommended restructuring all board members to one class, with each director requiring annual election—but Tesla is proposing that the term a director serves be trimmed from three years to two years. "If our stockholders approve Proposal Two at the 2022 Annual Meeting, the Board will thereafter be divided into two classes with staggered two-year terms, with directors distributed as equally between them as is possible," the company asserted in its proxy. Glass Lewis and ISS were unhappy with this response, noting in their proxy research papers that Tesla fails to address the shareholder vote on declassification, nor does it give a reason why it is ignoring the will of most investors. "We believe this is a failure on the part of the nominating and corporate governance committee to fulfill its obligations to shareholders," Glass Lewis declared. Meanwhile, Glass Lewis and ISS are urging approval of proposals that include shareholder proxy access, yearly reporting on antiharassment and discrimination initiatives, disclosure on employee arbitration, reporting on lobbying, adoption of a policy on freedom of association and collective bargaining, and additional disclosure on water risk. Glass Lewis notes in its report that Tesla has faced "more than 40 lawsuits from former and current employees alleging that it fosters a sexist and racist work culture" in the past five years, while CEO Elon Musk is also facing accusations of sexually harassing an employee of SpaceX, where he is also CEO. ISS said Tesla currently is facing at least seven sexual-harassment suits, plus allegations of racial discrimination, including litigation by the California Department of Fair Housing and Employment and a probe from the Equal Employment Opportunity Commission. "Investors would benefit from additional information to understand how the company is managing and mitigating associated risks," ISS notes. Glass Lewis and ISS cited these actions against Tesla in recommending that investors also support a proposal from Nia Impact Capital to detail the effects of the company's mandatory-arbitration policies. Tesla said in its proxy that its "standard arbitration provision specifically states that the parties are entitled to all remedies available in a court of law." Another employee-related investor proposal supported by the advisory firm calls for Tesla to embrace a policy on freedom of association and collective bargaining, which would certify unions' right to organize.
HSBC (HSBC) shareholders met with CEO Noel Quinn and Chairman Mark Tucker and grilled them on the bank's strategy for dividends and growth. The London-based lender is facing pressure from China's Ping An Insurance Group (PNGAY) to explore options, including spinning off its Asia business to boost shareholder returns. The insurer, which has not called publicly for a break-up, owned 8.23% of HSBC as of early February. "We note the demands expressed by a number of HSBC's small and medium-sized shareholders," a Ping An spokesperson said. "We support any proposal that is conducive to improving HSBC's operating performance and enhances shareholder value." HSBC's share price is down by about a third of its value from when Ping An started building a stake in the bank in 2017. A group of retail investors staged a brief protest and chanted "management should step down" over dividend cancellations and sluggish returns. "Resuming paying quarterly dividend in 2023 is 'too late' and the promised level of dividend is 'too low', said Jay Chong, a shareholder who engages companies and whose family holds more than half a million shares of HSBC.
Tesla's (TSLA) shareholder meeting on Aug. 4 will feature 13 resolutions, including eight filed by shareholders, which is up from five in 2021. Environmental and social issues are the subject of seven of the eight shareholder proposals, with social issues being the main area of focus. Tesla's board opposes all eight shareholder resolutions, believing that the company's policies and actions involving environmental, social, and governance issues are sound and appropriate. Support for resolutions regarding arbitration of sexual harassment and racial discrimination claims has risen from 27% in 2020 to 46% last year. BlackRock (BLK), Vanguard, and State Street (STT) will be key to the outcome. The big three index investors are top five shareholders in Tesla, together representing about 15% of its share capital. Earlier this year, Tesla was removed from the S&P 500 ESG Index due to concern about workforce issues.
Although Rocky Mountain Chocolate Factory Inc. (RMCF) says it is willing to negotiate a good faith settlement offer with the AB Value and Bradley Radoff group, the election of Mary Bradley to its board is not in the best interests of the company or its stockholders. The company cited her want of experience in retail franchise operations and corporate governance, and also just learned that her professional status has materially changed. Points raised by the board include Bradley's lack of experience with and understanding of the challenges of franchise retailing, in addition to a dearth of corporate governance experience, which invalidates her suitability as a board candidate. It is the board's opinion that any new director should have significant demonstrated experience and a deep understanding of franchise systems and the central requirements of franchise owner/operators, plus prior corporate governance expertise. RMCF's board is hopeful that a settlement of the proxy challenge is still possible, and is amenable to receiving a good faith proposal from AB Value.
HSBC (HSBC) CEO Noel Quinn hopes to appease its largest shareholder by returning shareholder dividend payouts to pre-pandemic levels. China's Ping An Insurance Group (PNGAY), which owns roughly 9.2% of HSBC's shares, wants the banking giant to spin off its burgeoning Asian arm from the U.K. business. Ping An has pushed for a break-up since the Bank of England prohibited lenders from paying out dividends early in the pandemic in an effort to maintain resiliency in the sector. However, Quinn said HSBC has determined that a break-up "would not achieve increased value for shareholders," after seeking independent advice on the matter. The bank's board is set to meet with retail investors in Hong Kong on Aug. 2. Meanwhile, a Hong Kong politician has backed calls for a spin-off of the Asian business and wants Ping An representatives to be appointed to the bank's board. However, Quinn expressed concern about a conflict of interest, given the overlap with its business model and where they both operate. Quinn's comments came as HSBC reported a 15% decline in pre-tax profits for the first half of 2022.
Elon Musk is being sued by a Twitter (TWTR) shareholder for reneging on his $44 billion deal to acquire the social networking platform. The investor, Luigi Crispo, who holds 5,500 Twitter shares, filed the lawsuit in Delaware Chancery Court. In addition to Musk, Crispo names as defendants two "corporate acquisition entities" related to the transaction. The lawsuit takes issue with Musk's "lame rationales for reneging on his contract," charging him with fabricating excuses to back out of the deal. Like Twitter's earlier suit against Musk, filed in the same court, Crispo's suit seeks a court order forcing him to honor the agreement. Musk formally answered Twitter's suit July 29 in a court filing that is currently sealed. His company, Tesla Inc. (TSLA), is not named as a defendant.
In a letter to investors on Aug. 1, David Einhorn said his Greenlight Capital took a new stake in Twitter (TWTR) last month, paying an average $37.24 for the stock. The move came as Twitter filed suit against Elon Musk after he backed out of a deal to acquire the social media giant. Einhorn wrote, "At this price there is a $17 per share of upside if TWTR prevails in court and we believe about $17 per share of downside, if the deal breaks. So we are getting 50-50 odds on something that should happen 95%+ of the time." He said the Chancery Court in Delaware has reason to force Musk to complete the purchase, noting, "If it lets Musk off the hook, it will invite many future buyers' remorse suits."
The next milestone in Europe’s efforts to create a global benchmark for environmental, social, and governance (ESG) investing has been shelved indefinitely. The "social taxonomy," which was to be the next plank in the European Union’s effort to create a guidebook for driving capital into activities that meet ESG standards, is unlikely to "see the light of day" in the next few years, say insiders. That's because officials are balking at allocating resources to a process that’s already marred by deep political division. The decision means that goals such as gender equality and supply chains that avoid exploitation won’t be enshrined in the EU's ESG regulations until—at the earliest—the latter half of the decade.
Elliott Investment Management on Monday disclosed that it had become the largest shareholder in Pinterest (PINS), backing the management of the firm and sending the company's shares up 21%. Pinterest has "significant potential for growth," which led Elliott to become its largest shareholder, Elliott managing partner Jesse Cohn and senior portfolio manager Marc Steinberg said. Elliott on Monday backed Pinterest Chief Executive Bill Ready, who took over on June 29, and also commended co-founder Ben Silbermann for the leadership transition. The statement from Elliott came as Pinterest reported a lower-than-expected profit due to higher costs and users spending less time on its platform. The company saw weakness from advertisers in the consumer packaged goods category, big-box retailers, and mid-market advertisers, finance chief Todd Morgenfeld said, adding that the digital advertising environment will continue to be challenging.
Elliott Management has acquired an undisclosed material stake in PayPal Holdings (PYPL), according to the Wall Street Journal. 13D Monitor President Kenneth Squire writes that this aligns with past strategies by Elliott to invest in ailing businesses. "PayPal is down more than 70% from closing as high as $308.53 just over a year ago," he notes. "While that is primarily due to a sell-off in growth stocks, there is an opportunity here to improve margins as the company's sales, marketing, research and development expense levels are higher compared to those of its peers—even double the levels at some of those companies." Elliott is better known for pushing for mergers and acquisitions at its portfolio companies, and "has had its best returns buying portfolio companies, fixing them, and selling them," according to Squire. "However, at a $99 billion market cap, PayPal is likely too big for them to do that, even with a partner. A more likely scenario is that the firm encourages PayPal to explore strategic alternatives around Venmo or Braintree or acquire other companies that would have synergies with PayPal's core business." Squire suggests Pinterest (PINS) as a possibility, noting Elliott has a roughly 9% ($1 billion+) stake in the company. "Encouraging PayPal to acquire Pinterest could be a win-win situation for Elliott," he writes. Squire adds that, based on its history, Elliott's PayPal interest is probably in the 1% to 2% range, "primarily in swaps and other derivatives, which do not have the same disclosure requirements as common stock."
Bennett Schachter, the top special purpose acquisition company (SPAC) banker and global head of alternative capital at Morgan Stanley (MS), is leaving for a role at Elliott Investment Management, say insiders. Schachter is set to join the Paul Singer-led hedge fund later this year, said the people. Amid ongoing scrutiny of SPACs by the U.S. Securities and Exchanges Commission, certain Wall Street firms have retreated from the business, including by waiving fees. Elliott, meanwhile, has raised a SPAC of its own, Elliott Opportunity II (EOCW).
The equivalent of a bare-knuckle fight is looming for control of mining company TNG, as markets guru and Australian Financial Review columnist Grant Wilson moves to sack the board of directors. Wilson, a former hedge fund manager, is behind an aggressive shareholder campaign against TNG. He wants to negotiate the removal of the TNG chair and CEO, but is happy to go to a shareholder vote. Wilson aims to sack TNG chair John Elkington and chief executive Paul Burton and replace them with himself and Anthony Robinson. Burton says a shareholder campaign against the company in 2018 from shareholders in Brisbane – led by Warren, Marilyn and Paul Brown – to remove then-chair Rex Turkington, was highly disruptive and led to a prominent businessman deciding against joining the board. The Brown family, which now owns 6% of the company, is backing Wilson, who this week lodged a substantial shareholder notice declaring an 8.8% interest in the company.
Some of the biggest companies in the United Kingdom could be downplaying risks from climate change on their bottom line and could face "appropriate action." Companies listed on the London Stock Exchange's premium market have been required since 2021 to make climate-related disclosures to investors in line with the global Taskforce on Climate-related Financial Disclosures (TCFD), or to explain why they have not. The UK Financial Conduct Authority (FCA), which regulates listings, and the Financial Reporting Council (FRC), the UK audit watchdog, published reviews on Friday regarding how companies have applied TCFD so far. The FRC said it found companies were providing many of the TCFD disclosures, marking a significant improvement on previous years, but more needs to be done. As a first step, regulators are likely to ask some companies why some disclosures were missing or too vague, or why they were stressing opportunities from climate change but giving little detail on risks to the business. "We also encourage companies to look ahead to the future implementation of reporting standards in development by the International Sustainability Standards Board (ISSB)," said Sacha Sadan, director of environment, social, and governance at the FCA. Britain is expected to switch from using TCFD disclosures to those now being written by the ISSB. The FCA said it expects to consult on migrating from TCFD to ISSB standards and whether it would be appropriate to make disclosures mandatory by going beyond the current "comply or explain" system.
BlackRock (BLK) this week issued a report indicating it had supported 24% of environmental and social shareholder proposals in the U.S. this year, versus 43% last year. Lindsey Stewart, director of investment stewardship research at Morningstar (MORN), says the decline is unsurprising, as BlackRock declared in May that it was "likely to support proportionately fewer [shareholder resolutions] this proxy season than in 2021" because of an increase in the number of proposals perceived as inappropriately prescriptive. "The result coming out of BlackRock isn't terribly radical in the context of what's happened across the wider market," Stewart explains. "You've seen the average level of support drop from about one third into the high 20s in percentage terms from the 2021 proxy year up to the 2022 proxy year. BlackRock's actions seem to be in line with that." BlackRock says in its 2022 voting summary that it observed "a 133% increase in the number of environmental and social (E&S) shareholder proposals, many of them more prescriptive than in prior years." Saturna Capital President and CEO Jane Carten says BlackRock's disclosure "can't be extrapolated into an overall statement," adding, "the variables to consider don't remain constant from year to year, and BlackRock's own report notes that in real numbers, they voted for 10 fewer environmental and social proposals in the last year over the previous year." Meanwhile, As You Sow CEO Andrew Behar says "investors are disappointed to see BlackRock backpedal on their support for climate change shareholder proposals in 2022, claiming that they were too 'prescriptive.'" He continues that "these resolutions are the appropriate investor response to inadequate corporate action on carbon-emission reductions and lack of accurate scope 3 disclosure," which "align precisely" with BlackRock CEO Larry Fink's 2020 letter and statement that "climate risk is investment risk." Behar further argues, "In this time of increasing risk, global heat-waves, droughts, ice-shelf collapse, and climate refugees, BlackRock has shrunk from its leadership position." A BlackRock spokesman cited the foreword in a report by Sandy Boss, the firm's global head of investment stewardship. "In keeping with our investment convictions, our view continues to be that the best economic outcomes for our clients will come through an orderly energy transition by companies that recognizes the needs of their consumers and other key stakeholders," Boss writes. "In our work engaging with companies, and, where clients have tasked us with it, casting proxy votes, our work on climate-related issues remains unchanged in focusing on the material risks and opportunities that the energy transition poses."
U.S. Senate Republicans are aiming to curb retirement plan sponsors' ability to consider environmental, social, and governance (ESG) factors in selecting investments. Sen. Mike Braun of Indiana this week unveiled a bill that would specify the fiduciary duty of plan administrators is to select and maintain investments based solely on monetary factors under the Employee Retirement Income Security Act. If plan sponsors want to consider non-pecuniary factors when choosing between funds, they could do so only if they are unable to distinguish them "on the basis of pecuniary factors alone," according to the bill text. Even if an ESG investment choice is able to meet that standard, plan advisers would also have to make lengthy justifications to include it. The measure is similar to recent legislation from Sen. Steve Daines of Montana, who joined Braun's bill as a co-sponsor, along with other Republicans. While Braun's legislation and similar bills are unlikely to advance with Democrats in charge, it may foreshadow what's to come if Republicans take control of either chamber of Congress after the midterm elections this fall. Democrats largely support ESG options and have sided with activist shareholders and sustainable investing organizations, arguing that such factors are just as material as traditional financial considerations.
Indaba Capital Management L.P., which is the largest shareholder of Tabula Rasa HealthCare Inc. (TRHC) and beneficially owns approximately 25.2% of the company's outstanding shares, has announced that pursuant to Section 220 of the Delaware General Corporation Law, it has requested that Tabula Rasa make available for inspection and copying the books and records of the company pertaining to the following: Chief Executive Officer and Chairman Calvin H. Knowlton’s and President and Director Orsula V. Knowlton’s share pledges and forced sales; financial results and guidance; directors’ adherence to the company’s insider trading policy; the Company’s agreement with Hope Healthcare Services, where director Dr. Samira K. Beckwith serves as President and Chief Executive Officer; Lead Independent Director A. Gordon Tunstall’s share sales, and; potential conflicts of interest involving officers and/or members of the board of directors and the company’s governance policies. Based on interactions with the board, information included in the company’s public filings, and other publicly available information, Indaba believes this books and records request is critical to protect shareholders’ best interests, stating, "As noted in our July 20, 2022, letter, Indaba has significant concerns regarding the independence of the directors and their apparent deference to conflicted insiders, particularly the Knowltons. Indaba questions how the Board can effectively oversee the husband-and-wife management team when its independent directors seem to have conflicts of interest, including Mr. Tunstall’s long-standing ties to the Knowltons and Dr. Beckwith’s role as the President and Chief Executive Officer of Hope Healthcare Services, a customer of the Company. Indaba has also identified questionable trading patterns by both the Knowltons and the Board’s lead independent director, Mr. Tunstall, in which sizable sales or pledging arrangements seem to have occurred shortly before or after changes to the Company’s guidance. Notably, we find it appalling that the Company has been unwilling to have any substantive interaction with Indaba over the past month, even as we have become the Company’s largest individual shareholder by a substantial margin. This is the case despite us being informed that all of the Board’s independent members recently voted in favor of a settlement term sheet proposed by Indaba. Accordingly, the Books and Records request will allow Indaba to investigate potential misconduct and assess individual directors’ independence, adherence to internal policies and performance of the Board and/or management’s fiduciary duties. As stated in our letter to the Company’s independent directors last week, we urge them to act with urgency and finally work with us in good faith to address shareholders’ concerns. We are committed to doing everything in our power and spending as much time as necessary in order to facilitate change atop Tabula Rasa.
The U.S. Chamber of Commerce filed a lawsuit on Thursday against the U.S. Securities and Exchange Commission (SEC) over recent changes to proxy rules. The suit, filed by the Chamber in addition to the Business Roundtable and the Tennessee Chamber of Commerce & Industry, claims the SEC failed to "follow proper procedures or provide adequate justification for its decision to roll back the 2020 Proxy Advisor Rule before it was allowed to take effect." The move by the SEC earlier this month was the latest in a long-running battle over how to regulate proxy advisers. The SEC's recent rules specifically rescind two exemptions, introduced under former President Donald Trump, including a requirement that proxy advisers provide a first look to corporations of the advice to be placed on the agenda. It also removed a requirement that allowed clients of proxy firms to be notified of any written responses to their advice from companies. The National Association of Manufacturers and The Natural Gas Services Group Inc. filed a suit contesting the changes earlier this month.
Sustainability data firm ESG Book reports that stock funds outperformed across global markets over the last five years when weighted toward companies with positive environmental, social, and governance (ESG) scores. Analysis of model portfolios holding 60 to 85 stocks on average showed variable performance according to individual ESG components, with companies with higher governance scores outperforming more strongly than those with higher social scores. The best regional performer was a model portfolio of European stocks skewed toward ESG leaders, seeing an annual average return 1.59% above its unweighted benchmark from January 2017 through April 2022. A similarly organized portfolio of Asia-Pacific companies followed closely, overtaking its benchmark by an average of 1.02% annually. North American and global portfolios showed marginal outperformance, with excess returns of 0.17% and 0.13%, respectively. This year has tested sustainable investors due to a decline in tech stocks and a rally in energy stocks, causing many ESG equity funds to underperform, but ESG Book's report supplements mounting evidence that ESG can still fuel outperformance across extended periods. "Over a long-term horizon, regardless of region, there are benefits and better risk-return profiles," said ESG Book's Todd Bridges. Concurrently, ESG Book found wide performance disparities when model portfolios were structured around individual ESG governance components. For example, portfolios skewed toward companies with strong corporate governance metrics topped their benchmarks across the four analyzed regions, with average annual outperformance as high as 2.17% in Europe. "It's a very uniform signal that markets understand the importance of governance and have been seeing it as a value creator," Bridges noted. Meanwhile, preference toward companies with high social scores caused underperformance in the North American and global portfolios, but outperformance in Asia-Pacific and Europe. "The markets are confused as to what it is, how to measure it, and how to determine performance implications," Bridges said. ESG Book CEO Daniel Klier observed slightly more agreement concerning the value of environmental factors, as companies aim to quantify and reduce their climate-related risks. Companies with high environmental metrics scores contributed to outperformance in all but the global category, where performance was impeded by exposure to emerging markets, trailing its benchmark by an average 0.82% annually. Klier said this variability in performance indicates why singular ESG ratings combining all three elements into a single score can be "meaningless" to investors. "Unless you unpack a single score into the drivers, you will never get to the bottom of what's driving performance," he concluded.
Laboratory Corp. of America Holdings (LH) announced it would spin off its wholly owned clinical drug trial business, causing a nearly 4% rise in shares. The spin-off will establish two independent, publicly traded companies, Labcorp and the clinical-development business. The clinical-development unit was launched in 2014 after the $6.1 billion acquisition of Covance Inc. Contract research organizations, which suffered after clinical trials were disrupted by the pandemic, have seen rebounding demand as drugmakers and governments invest in newer treatments. The industry witnessed several multi-billion dollar deals last year, with medical device maker Thermo Fisher Scientific Inc. (TMO) buying contract researcher PPD Inc. for $17.4 billion and Icon Plc (ICLR) acquiring PRA Health Sciences for about $12 billion. Labcorp started a strategic review last year amid investor pressure from Jana Partners, which concluded without a merger or an acquisition as Labcorp offered investors a dividend and cleared a $2.5 billion buyback program. Adam Schechter will continue to be Labcorp's chairman and CEO after the completion of the planned spin-off, which is expected to close in the second half of next year. Shares of Labcorp had climbed nearly 4% at $258.80 in premarket trading.
A record number of shareholder votes this year were on resolutions addressing environmental, social, and governance (ESG) issues. Investors have voted on 282 ESG-related resolutions this proxy season, with 34 resulting in majorities, according to As You Sow, a nonprofit shareholder advocacy group. At least two dozen more votes could take place and put the 2022 proxy season on pace with the 39 majority votes on ESG-related proposals a year ago. Meanwhile, activists say the 268 proposals that were withdrawn this year are just as significant. Withdrawn proposals largely reflect agreements with companies outside of the resolution process, says business sustainability consultant Ceres. Agreements are better than majority votes, according to Ceres. The proportion of withdrawals is similar to past years, but the number is higher because of the record 610 resolutions filed this year, says Heidi Walsh, executive director of the Sustainable Investments Institute, which tracks shareholder activism.
Having a female CEO at the reins of a company or chairing its board of directors tends to make a big difference in elevating a firm's gender diversity record, Altrata's latest Global Gender Diversity report shows. Of the various companies studied, Organon (OGN) had the highest proportion of female board members. Spun off from Merck (MRK) last year, Organon is chaired by Carrie Cox, who is joined on the board by eight other women and four men. Ulta Beauty (ULTA), meanwhile, ranked second on the list of global companies with the most females in leadership posts. It's worth noting that a female chief executive is not required to have gender diversity. Autodesk (ADSK), Bath & Body Works (BBWI), Bristol-Myers Squibb (BMY), and Etsy (ETSY) all have male CEOs, but still have a substantial percentage of women in key decision-making positions. Approximately 28.2% of board members are women, according to the study. But many of these women are appointed to nonexecutive roles, which are often centered on board oversight instead of real decision-making power. Breaking board representation down even further reveals approximately 9.9% of executive directors are women and 8.9% of board chairs are women. Approximately a third of nonexecutive posts are held by a woman, the report found.
PayPal (PYPL) shares increased 8% after reports that Elliott Management had taken a stake in the company, but Bank of America (BAC) analyst Jason Kupferberg is skeptical of what impact an activist could have on PayPal. "The notion of an activist at PayPal has become a bigger discussion topic after the company's third straight guidance cut last quarter, though we question whether PYPL fits the mold for a classic activist playbook, as there are not large, separable chunks of the business to sell, the balance sheet is in great shape, [and] management already took a restructuring charge in 1Q," Kupferberg wrote in a note. He believes an activist could potentially be a distraction, and while an activist could push for a CEO change, the dynamic is complicated as CEO Dan Schulman is picking the company's new chief financial officer.
Florida Gov. Ron DeSantis is attacking environmental, social, and governance (ESG) investing and companies like PayPal Holdings Inc. (PYPL), saying he would work with the state legislature to combat a so-called "woke ideology" touted by Wall Street banks, asset managers, and big technology companies. He criticized ESG asset managers and banks, claiming their actions have increased U.S. reliance on foreign energy and are making industries like gun manufacturing less favored. DeSantis said he would work to ensure that the State Board of Administration, which oversees Florida's pension funds, will be unable to apply "political factors" to investment decisions that instead must focus solely on "maximizing the return on investment." Banks, credit card companies, and money transmitters would also be barred from discriminating against customers for their religious, political, and social views. This year saw a record number of shareholder proxy questions on racial justice, gender equality, and gun violence on the agenda at annual meetings, while Bloomberg Intelligence notes that average support for racial audits has been above-average at about 45%, and at least eight such resolutions passed. Research from BlackRock Inc. (BLK) indicates that about two-thirds of resolutions that received 30% to 50% support spur companies to partly or fully meet the requests.
UK homebuilder Countryside Partnerships is in the midst of exiting its asset intensive operations in order to focus on its asset light operations, wrote Matt Sweeney, managing partner and portfolio manager at Laughing Water Capital, in a letter. In late May, stated the letter, Inclusive Capital, a large shareholder, publicly announced that it had submitted a bid to take the company private. Subsequently, the company announced that it would be suspending a buyback and running a formal sale process, but not for several months. "It seems clear that Inclusive Capital’s bid was opportunistic, as the company is presently dealing with near-term problems that have been weighing on shares," wrote Sweeney. "In brief, I believe many of these problems can be tied to an interim CEO and a board that was under attack by activists (that we supported) trying to grow at any cost in order to stave off the activists. Essentially, in this business the CEO’s job should be primarily about capital allocation."
Days after carving out its consumer health business, GSK (GSK) reported a strong second-quarter performance on Wednesday, boosting its full-year forecast. Having survived a protracted revolt by Elliott and Bluebell last year, investor faith in New GSK's prospects has been boosted by clinical trial success for a potential blockbuster RSV vaccine, M&A activity, and a share price that has climbed despite weak stock markets. On Wednesday, GSK said it now expects 2022 sales to rise 6% to 8% and adjusted operating profit to increase by 13% to 15%, excluding any contributions from the company's COVID-19 solutions business. Previously, the company had forecast full-year sales to grow 5% to 7% and adjusted operating profit to rise 12% to 14%. As a result of the spin-off of the consumer health business, Haleon (HLN), GSK is getting £7 billion of financial firepower, which it will tap to further invest in M&A, GSK CEO Emma Walmsley said. In a post-earnings conference call, Walmsley said GSK is somewhat insulated from the impact of rising inflation given its main vaccines division is protected by multiple supply chain options and benefits from forward-buying.
Ingevity Corp. (NGVT) on July 25 elected William Slocum and Shon Wright to its board, and announced the retirement of long-time director Michael Fitzpatrick. Fitzpatrick has been on the board since the company's founding in 2016, served on the audit committee, and was the chair of the nominating, governance, and sustainability panel. He is also an executive advisor partner at Wind Point Partners Inc. Slocum is a partner at San Francisco-based investment firm Inclusive Capital Partners, which aims to positively leverage capitalism and governance to improve the health of the planet and the well-being of its inhabitants, and to deliver long-term shareholder value through active partnerships with companies. He also is an independent director of Strategic Education Inc. Wright is an officer of Cummins Inc. (CMI) and president of Cummins Turbo Technologies, a global power technologies firm and manufacturer of commercial turbochargers for the commercial diesel market. "We're excited to welcome two highly qualified and accomplished individuals, who will add significant value, to our board of directors," said Ingevity board chair Jean Blackwell. "The addition of Will and Shon will enhance our board with their unique skills and perspectives."
Elliott Management plans to raise its stake in Swedish Match (SWMAY) above 5%. Elliott opposes the current terms of Philip Morris International's (PM) deal for Swedish Match. At least two other shareholders have also had concerns about the price being offered by Philip Morris. Earlier reports stated that Elliott was accumulating a stake in Swedish Match in an attempt to block the sale of the smokeless tobacco company. Some shareholders initially responded negatively to the $16 billion deal when it was reached in May. A Jefferies analyst said in May that Philip Morris' bid faces significant risks from retail investors. He added that the 90% tender threshold could prove a high bar to clear.
Florida CFO Jimmy Patronis released a statement in support of Gov. Ron DeSantis' efforts to fight back against environmental, social, and governance (ESG) ratings being pushed on America's economy and investment strategies by economic activists. The letter was issued to the State Board of Administration (SBA) in June to set expectations that ESG ratings may not be used for Florida investments. Patronis said, "As an SBA Trustee, I'm proud to stand with Governor Ron DeSantis and the Florida Legislature to fight back on behalf of Floridians and ensure protections against ESG ratings are codified into Florida law. Our teachers, law enforcement officers, and state employees, who have worked their entire lives in service to our state, shouldn't have their pensions squandered because a business doesn’t align with some woke rating agency’s political beliefs."
Elliott Investment Management is holding discussions with PayPal Holdings (PYPL) over an agreement that would see the investor have a hand in determining the future direction of the company, say insiders. Talks between Elliott and PayPal are amicable and could result in the investor getting representation on the board, the people said. PayPal has been cutting staff and closing offices as it looks to cut expenses. Elliott, which has amassed a sizable investment in PayPal, wants the company to accelerate those efforts. It may ultimately become a top-five investor in the company, the sources said.
Lionbridge Capital LP, a significant shareholder of Alexander's (ALX), on Wednesday issued an open letter to other shareholders outlining its views and concerns regarding the current state of the company's affairs. Lionbridge has been engaged in a private dialogue with the board of directors in an effort to address the issues hindering the stock performance. According to Lionbridge's letter, Alexander's has significantly underperformed its relevant indices for over a decade, with material underperformance prior to the coronavirus pandemic as well. In its letter, Lionbridge suggests two potential strategies that it believes will maximize value for shareholders. One includes a refreshed board with the appointment of new independent directors. The other pathway is for the company to commence a strategic review process, including a possible take-private transaction. The letter states that Lionbridge believes it has identified interest from an institutional investor that has indicated it is willing to purchase ALX outright at a significant premium to the current trading price or to participate alongside Vornado Realty Trust (VNO) in a squeeze-out merger.
Sources say that Elliott Management Corp. has built an ownership interest in PayPal Holdings Inc. (PYPL). The size of the investor's stake and its intentions with regards to the company's governance were not known as of press time. PayPal has around $8 billion of cash and short-term investments and low debt. PayPal's shares are down nearly 60% since Jan. 1, as e-commerce sales for which the company facilitates payments slowed with the end of COVID-19 lockdowns.
The National Association of Manufacturers and Natural Gas Services Group have sued the U.S. Securities and Exchange Commission over its move to ease regulations for proxy advisory firms, claiming the agency failed to follow the federal process for policy revisions. A 2020 rule clarified that proxy voting advice generally constitutes a solicitation under federal rules. Plaintiffs claim that after the confirmation of Gary Gensler as the new chair, the SEC “abruptly changed course” on regulation. According to plaintiffs, the SEC suspended the rule and then rescinded two critical pieces—one regarding timely notice of analysis to subject companies, with a requirement the subject companies' response be given to proxy advisory firm clients; and the other a notice that, depending on the facts, proxy advisory firms may be liable for misrepresentations. The moves were seen as concessions to Institutional Shareholder Services and Glass Lewis. NAM and NGS argue the rescission is procedurally defective, arbitrary, and capricious and must be set aside under the Administrative Procedure Act. NGS alleges that it has been the victim of materially misleading or factually incorrect statements from proxy advisory firms.
The U.K.'s Financial Reporting Council (FRC) recommends that companies use technology to improve shareholder engagement at annual general meetings (AGMs). The corporate reporting watchdog says investors should be offered the same rights of participation, whether their attendance is live or virtual. It is legally unclear in Britain whether fully virtual AGMs are permissible, so companies transitioned to hybrid events; yet many opted to revert to physical-only meetings this year as social distancing rules were lifted. The FRC report argues that, for any virtual AGM component, companies should use technology that allows questions to be submitted in real time, and urges companies to open the online Q&A function at the beginning of the AGM and ensure questions are taken "from all the available channels." The agency adds that when employing a platform to manage online questions, meeting organizers should explain its workings and operate it in "a manner consistent" with any physical Q&A occurring. The FRC further suggests companies consider answering questions prior to the AGM via an online Q&A or webinar so investors can make better-informed voting decisions. The regulator explains that an individual approach to the AGM, including the selection of technology, is necessary because companies have different shareholder bases. "With this new guidance, we want to encourage companies to seize the opportunity to maximize shareholder engagement by embracing new technologies," says FRC CEO Jon Thompson. "We also recognize that there are many benefits of physical meetings, allowing for more effective in-person dialogue, so companies should think carefully about which approach is right for them and their shareholders."
Bluebell Capital's campaign for corporate governance changes at Switzerland-based luxury goods holding company Richemont looks like an uphill struggle. Under pressure from the investor, the company will allow listed A shareholders to designate a board representative at a September shareholder meeting. Yet Chair Johann Rupert's vast voting power means he may still reject outsiders. Bluebell argues, among other requests, that ordinary investors should be able to directly appoint a board member to get a bigger voice. Rupert, who owns unlisted B shares that carry 50% of the votes even though they count for just 9.1% of issued capital, can pick directors and decide strategy. Richemont's own by-laws and the Swiss civil code say holders of ordinary A shares are entitled to a representative. But this appears to have been neglected by shareholders. That will change in September, when the company will allow A shareholders to pick their own board member. The choice is between Bluebell candidate Francesco Trapani, a former boss of jeweller Bulgari, and Richemont-backed Wendy Luhabe, a current board member. Richemont has recommended shareholders vote against Trapani. However, Richemont's notice to the annual general meeting suggests the A shareholder representative will still need to be approved by a full shareholder vote. That means Rupert's unlisted B shares could still reject Trapani, provided there are valid reasons to do so. Rupert says there is no need to change Richemont's board as its discussions always take into account the interest of all shareholders.
Several factors have been spurring companies to increasingly address environmental, social, and governance (ESG) factors in recent years, says Jonathan F.P. Rose, CEO of Jonathan Rose Companies. Amid recent high-profile criticisms of ESG, investors are seeking to differentiate between degenerative products—that worsen the health of people and the environment—and regenerative products, which encourage the well-being of human beings and the planet. For instance, the detrimental effects on human health from a product sold by Bayer (BAYRY) reduced the company's value by $20 billion. Investors are turning to international reporting standards to ensure the accurate and transparent assessment of their practices, such as the Sustainability Accounting Standards Board, the Task Force on Climate Related Financial Disclosures, and the Climate Disclosures Accounting Board. These need to be accompanied by sector-specific standards, such as The Global ESG Benchmark for Real Assets. Effectively planned ESG strategies can help investors curb risk and increase returns. The current criticisms of ESG will help shift investments toward the businesses that are creating the most regenerative, societal, and environmental value, with a potential to achieve long-term economic value. Investors that overlook the risk of harmful products and belittle ESG as a concept are likely to miss out on ESG's potential.
The April to June proxy voting season is when many publicly traded companies host their annual general meeting and when shareholders, or their delegated proxies, vote on issues on the company’s ballot. Asset managers at mutual funds also may vote proxies on behalf of the funds’ unitholders, so proxy voting may be an important aspect to consider when selecting an asset manager. At the same time, environmental and social-related shareholder proposals are on the rise, including requests for enhanced disclosure on workforce diversity practices or climate-related risks and opportunities. Shareholders submitted an unprecedented 924 environmental, social, and governance (ESG)-related proposals to U.S. companies for the 2022 proxy voting season, according to data tracked by investor intelligence firm Georgeson. RBC Global Asset Management (RBC GAM) opts to make each voting decision independently based on its proxy voting guidelines. These custom guidelines are revised annually to reflect the company's views on trends in responsible investment and corporate governance. For instance, RBC GAM added a recommendation for boards to implement policies, goals, and timelines to enhance the diversity of boards and senior management. A 2021 report from SpencerStuart found that across S&P 500 Index-listed firms, women represented only 30% of all directorships in 2021, up from 28% in 2020. RBC GAM has also adopted a "net-zero ambition" for greenhouse gas emissions and has revised its climate change-related shareholder proposal guidelines to reflect these updates. For instance, the company expects issuers to work toward identifying and publicly disclosing material financial and strategic impacts resulting from the transition to a net-zero economy. Regarding COVID-19 and executive compensation, RBC GAM evaluated say-on-pay proposals on a case-by-case basis. The company has maintained a dedicated section in its guidelines on the impacts of COVID-19 on executive compensation, and pointed out that additional disclosure is especially needed in instances where a company made significant cuts to its workforce or furloughed employees as a result of the pandemic.
Boards quickly spring into action when a company's performance is slipping, says HeeJung Jung, an assistant professor at Imperial College Business School in London. That's when directors recruit new talent with fresh perspectives and the requisite skills to fill board seats. However, stressed directors—with their jobs, pay, and reputation on the line—routinely tap executives with whom they believe they can create a comfortable rapport, Jung asserts in a new study published in Organization Science. As a result, the range of expertise in boardrooms improves, but diversity drops, when companies experience a crisis. Jung and her team uncovered this hidden barrier to diversity after analyzing 15 years of data and board changes at 733 large U.S. manufacturing companies. Researchers found a positive correlation between board personnel changes that resulted in lower levels of diversity and periods in which boards struggled to reverse negative performance. During the 2008 crisis, for example, advances in board diversity flattened at the companies in her data set, and the number of racial minorities on boards dropped significantly. The study also found that when women or underrepresented executives led the board or key committees during strenuous periods, diversity wasn't torpedoed, though it still declined.
In a new survey, The Conference Board indicates that limited board turnover rates pose a significant obstacle to increasing board diversity in terms of backgrounds, skills, and professional experience. The survey showed that the percentage of newly elected directors in the S&P 500 and the Russell 3000 has held steady in the range of 9% to 11% since 2018, which Michael Peregrine, partner at McDermott Will & Emery, says is "not sufficient to effectively enhance demographic diversity and add relevant skills and experience." Peregrine says this is becoming a governance problem. "First, boards are increasingly seeking to add more directors with business strategy experience in order to enhance boardroom discussions and increase the role of the board as a valued partner to management. Indeed, The Conference Board data suggests that the percentage of board members with business strategy experience has been declining as boards have focused more on adding directors with functional experience in ESG areas, among other core competencies," Peregrine explains. "Second, The Conference Board notes that investors and other key third party constituent interests are increasingly focused on supporting board composition that reflects a balance of short, medium, and long tenured directors. They are also frequently opposed to directors who are over-boarded—serving on the boards of more than four major companies—for engagement and attentiveness reasons." However, he notes that term limits and mandatory retirement policies are unpopular and unlikely to overcome concerns. "Rather, as The Conference Board suggests, combining those policies along with those which address over-boarding, director evaluation, and overarching expectations of director engagement, service, and tenure, offer the twin benefits of preserving to the board some flexibility to retain existing members, while offering additional, more discretionary options by which turnover can be effected," he says.
New research examines whether disclosed “unearned shares” provide new information about a firm's future performance. This new disclosure was mandated by a 2006 U.S. Securities and Exchange Commission rule change that aimed to raise the standards of compensation disclosure. Researchers reviewed a sample of large U.S. public firms from 2006 to 2013 for a paper forthcoming in the Journal of Accounting and Economics, "Hidden Gems: Do Market Participants Respond to Performance Expectations Revealed in Compensation Disclosures?" The paper shows that disclosed unearned shares from performance-based stock grants reveal valid forward-looking information about a firm. Unearned shares disclosure contains unique information that is not captured by a firm's current performance, observable firm and CEO characteristics, or other known information channels. The disclosed level of unearned shares is highly correlated to firms' future performances. Investors underestimate the correlation between disclosed unearned shares and future firm performance, and are later surprised when actual performance is reported. The findings suggest that under the enhanced disclosure rule, firms, on average, truthfully reveal new information to the public and that investors could improve market efficiency if they promptly incorporated such information into asset prices.
Chris Hughes writes in an opinion piece that a review of the U.K. Corporate Governance Code has prompted two law professors to propose its abolition, but such a measure "might not be radical enough." When launched in 1992, the code's guidelines originally sought to bolster oversight of company audits and give outside directors a wider role. Hughes notes those guidelines "have since mushroomed in response to subsequent government reviews, adding directives on pay and the broader role of non-executives." This should not be problematic, as the code consists of provisions as opposed to rules. "If companies can't comply with the precepts, they can just say why," Hughes writes. "However, those with a so-called premium listing, a requirement for inclusion in the FTSE UK indexes, must describe how they have 'applied' the code in their annual reports." Investors can rebuke boards for offending moves by defeating company resolutions on directors' pay or re-election at annual meetings. "Despite the code's optionality, there is strong market pressure to comply rather than explain," Hughes points out. "A 2019 study by auditor Grant Thornton UK LLP found that nearly three-quarters of FTSE 350 firms followed all of the directives. In practice, then, the U.K. appears to have ended up with a one-size-fits-all governance regime that lacks the intended flexibility. The Financial Reporting Council that oversees the code has slimmed and simplified it in recent years. Yet there are still some 41 provisions." This can be limiting for smaller companies that may wish to retain unconventional leadership structures, especially in terms of founders' sway. The University of Cambridge's Brian Cheffins and Bobby Reddy want the code discarded outright. "They suggest that firms could simply make disclosures about a handful of key aspects of their governance, such as directors' possible conflicts of interest," Hughes writes. However, he sees a problem in the fact that "some companies ought to be subject to tough governance without qualification. Banks, insurers, and businesses involved in public-service contracts come to mind, given their failure would have a broader impact." Some authority will need to enforce restrictions, but Hughes suggests "a simplified code, with much more explicit wiggle-room for companies that pose less risk, would be an alternative remedy." In conclusion, he writes: "Britain needs a governance regime that's tough where necessary without stigmatizing companies that have sound reasons for custom boardroom arrangements. It must also decide precisely how directors' duties beyond serving shareholders are imposed and policed. Binning the current governance code won't, on its own, do the trick."
In a letter to the Financial Times, Dan Harris, a partner at London's Chancery Advisors, said three fundamental points have been missed in the dispute between Ben & Jerry's Homemade (BJH) and Unilever (UL) involving an intermediate holding company called Conopco. "First, it is simply beyond comprehension to the markets that BJH effectively argues that it enjoys some sort of special exemption from group governance policies. The universal expectation is that these cascade downstream," wrote Harris. "Presumably BJH intended to become a Unilever product and that is why the Unilever logo is displayed on tubs of BJH ice cream. What BJH fails to see is that biting the hand (and reputation) that feeds you is a liability and not an asset." Further, Harris noted that "any arrangement between intermediate parent and subsidiary that preserves a degree of autonomy for the subsidiary owes its existence to the law of obligations...It would be illogical if, as part of the acquisition of a subsidiary, the arrangements alienated the very asset it had acquired." In his third point, Harris wrote, "BJH's activism in what it calls the 'occupied Palestinian territories' appears to have only developed in 2019. This was almost two decades after the acquisition agreement...It is difficult to see how that term captures an ex-post facto mission." Harris concluded, "If ever there was a case for shareholder activism, this is it. If not the New York courts or mediation, Nelson Peltz's Trian fund is well positioned to 'try and' sort it out."
Former Japanese Prime Minister Shinzo Abe's corporate governance reform legacy faces an uncertain future as current Prime Minister Fumio Kishida pitches a "new form of capitalism." Kishida said in a policy address in October, "It is important that companies take a long-term perspective and do business in ways that are good for everyone, in which not only shareholders but also employees and customers are able to benefit." Some investors are worried the message signals that reforms may fall by the wayside, including bringing management under tougher oversight, ending cross-shareholdings among companies, opening up Japan Inc. to takeovers, and accelerating consolidation in industries. People close to the Kishida government recognize the importance of Abe's reforms, and the need for further efforts. "It is the only thing I can point to in Abenomics...as having a significant impact 10 years later," said Ken Shibusawa, chair of Commons Asset Management and a member of Kishida's New Form of Capitalism Realization Council. "In the last 10 years, Abenomics did play a part in better corporate governance. The question then is, 'Is it enough?'" Shibusawa says the need for dialogue with shareholders is now widely understood in Japan. But greater awareness has yet to translate into a noticeable improvement in corporate performance, according to Tomohiro Ikawa, a portfolio manager and Tokyo-based head of engagement at Fidelity International. Over half the companies in the TOPIX index, the most widely followed stock market gauge in Japan, have a price-to-book ratio below one, unchanged from 30 years ago, Ikawa said. That indicates investors do not expect those companies to make sufficient returns on their capital in the future. The planned revamp of the TOPIX index could play a role. The Tokyo Stock Exchange will gradually remove companies with low market capitalizations from the index and promises public hearings on a further review of the index but has not given a date. "If the TOPIX becomes like the S&P 500 index, with fewer issues and regular reshuffles, it would take the Tokyo market to the next level," Fidelity's Ikawa said. But even enforcing changes that have already been made is proving difficult. Of Japan's 12,000 corporate pension funds, only 56 had signed the stewardship code as of the end of June, according to data from the Financial Services Agency.
According to a new report from The Conference Board, companies with mandatory board retirement policies based on age fell from 70% in 2018 to 67% by July 2022 in the S&P 500, and from 40% to 36% in the Russell 3000. The percentage with mandatory retirement policies based on tenure held steady at 6% in the S&P 500 and 4% in the Russell 3000. With the decline in mandatory turnover policies has come an increase in the number of companies performing comprehensive board evaluations that include board, committee, and individual director assessments. The report shows that the share of companies evaluating all three areas climbed from 37% in 2018 to 52% in 2022 in the S&P 500, and from 18% to 34% in the Russell 3000. In addition, the report reveals an increase in the share of companies with overboarding policies, which limit the number of other public company boards on which a director can serve, from 64% in 2018 to 72% in 2022 in the S&P 500, and from 45% to 50% in the Russell 3000. However, the percentage of newly elected directors has held steady since 2018 at 9% in the S&P 500, and rose just slightly from 9% to 11% in the Russell 3000.
Many companies are slow to replace underperforming CEOs, to respond to a sudden departure of their CEO, and often fail to appoint a viable or permanent successor, according to a paper by Stanford University accounting professor David Larcker and colleagues. Four in 10 CEOs retain their jobs despite five years of worst-in class performance based on return on assets. Interim leaders are negatively associated with firm performance and increase a company's long-term risk of failure. What is more, the longer it takes to find a permanent successor, the worse the operating results. The paper also shows about half of underperforming CEOs who are forced to resign are replaced by external candidates, which suggests companies could have taken succession planning more seriously. The researchers found the ambiguous language companies use to describe departures makes it difficult for shareholders to determine whether the CEO was fired. Researchers also found a strong correlation between stock price performance and the likelihood a leader was pressured to quit.
A new paper, "ESG Ratings—A Compass Without Direction," from the Rock Center for Corporate Governance at Stanford University, looks at environmental, social, and governance (ESG) ratings and examines issues about their reliability. ESG ratings are supposed to measure ESG quality, but the authors posit there are two alternative interpretations of what that means. The authors observe that a huge number of variables assessed for ESG ratings creates issues by itself, requiring the ratings firms to make a variety of judgments. The authors also have found that the relationship between financial performance and ESG ratings is “uncertain.” Moreover, the authors say the use of ratings information is impaired by the “lack of comparability across firms, lack of standards, the cost of gathering information, and a lack of quantifiable information.” They contend that demand for ESG information has outstripped the ability of firms to supply accurate data. The authors conclude that, “while ESG ratings providers may convey important insights into the nonfinancial impact of companies, significant shortcomings exist in their objectives, methodologies, and incentives which detract from the informativeness of their assessments.”
Nasdaq's board diversity rule takes effect this month, Aracely Muñoz, director for corporate partnerships at Children's Medical Center Foundation and board member for Educational Opportunities, writes in an opinion piece. The enforcement of the U.S. Securities and Exchange Commission-approved rule is a step in the right direction, but the agency does not provide a plan to encourage companies listed on Nasdaq to increase diverse board members beyond two individuals annually. Companies will face no monetary fine and will have a full year to meet its requirements or even longer depending on when they began their listing on Nasdaq. The stock exchange does provide recommendations and resources that can be consulted to find qualified candidates to meet this new requirement. Corporate leaders need to consider what diversity means for their organizations. Boards have the opportunity to invite different perspectives and experiences from a variety of generations if they are open to bringing in younger members. Companies have made headway in diversifying their boards but they must continue to proactively diversify their boards beyond the new rule's minimum requirements.
Only 13% of boards added new standing committees in the past year, according to a survey of Society for Corporate Governance members representing nearly 180 public companies. Among boards that added a new committee, a technology committee was most common, while others included cybersecurity, sustainability, and environmental, social, and governance-related (ESG) committees. Fifty-five percent reported their board expanded oversight responsibilities of one or more of its standing board committees, with many citing the inclusion of ESG. Sixty-eight percent reported changes in their boards' committee composition that came about organically. Thirty percent reported they have sought or are currently seeking one or more new directors with specific expertise or skill sets related to a committee's scope of responsibility. For shareholder engagement, 68% of large-caps delegate oversight to the nominating and governance committee and 27% delegate oversight to the full board, compared to 55% and 29%, respectively, for mid-caps. For shareholder proposals, 81% of large-caps delegate oversight to the nominating and governance committee and 14% delegate oversight to the full board, compared to 63% and 32%, respectively, for mid-caps. Few respondents said the board changed delegation of oversight in the past year or were considering doing so.
Corporate boards in Europe are outpacing their U.S. counterparts when it comes to tying executive pay to environmental, social, and governance (ESG) targets. About 60% tie ESG goals to executive pay, compared to only 37% in North America, according to a survey by Corporate Secretary. One-quarter of U.S. companies linked ESG metrics to executive pay, Glass Lewis found last year. At S&P 500 companies, that figure jumped to 57%. However, governance experts expect U.S. boards to soon catch up to Europe. The shift could occur within the next two years, says Todd Sirras, managing director at Semler Brossy, an executive pay consulting firm. In a review of changes in say-on-pay votes during the 2022 proxy season, Semler found that institutional investor support for executive pay packages is slipping. John Martini, a partner at the law firm Holland and Knight, says ESG is gaining traction with investors, but many boards are in denial. “What I find is the boards that are not doing it are entrenched: They think that ESG should not be a component [of pay] and they are very stuck on this position,” he says.
Cash held by U.S. companies has increased from $1.6 trillion at the turn of the century to about $5.8 trillion this year, according to Mitchell Petersen, a finance professor at Northwestern's Kellogg School of Management. The rate of increase, driven by tax considerations, concerns investors who'd rather see that money put into operations or returned to them in dividends or buybacks. The Tax Cuts and Jobs Act that went into effect in January 2018 was aimed at reducing incentives to hoarding corporate cash overseas. Instead of shifting more cash into domestic operations, however, most companies stashed even more money abroad. Cash positions of U.S. companies stood at $4 trillion in 2018, shortly after the tax reforms became law, but have since risen 48% to $5.9 trillion. While multinationals have an easier time these days repatriating overseas profits, thanks to tax reform, those with intangible assets like software IP, including tech giants, still have an incentive to hold such assets in countries with low tax rates. Companies are also waiting to see what new regulations could put the squeeze on their cash holdings. The Inflation Reduction Act before Congress would impose a minimum 15% corporate tax rate, a policy that President Biden has encouraged since taking office. Last year, the OECD finalized a tax deal in which 136 countries representing more than 90% of global GDP agreed to a minimum 15% tax rate starting next year. If regulations and laws don't help to bring money home, there's always the pressure applied from investors. It was Carl Icahn who pressured Apple (AAPL) to share some of its cash holdings with investors after complaining about the “massive amount of cash on the balance sheet.” Apple's cash on hand has fallen to $193 billion last quarter from $267 billion in 2018.
Despite the roughly 10% lift that shares in both Pinterest (PINS) and PayPal Holdings (PYPL) received this week after Elliott Management disclosed a stake in each company, investors should not expect a quick turnaround in either company's fortunes, writes Bloomberg Opinion columnist Martin Peers. "Don't get me wrong," says Peers, "Elliott has scored some home runs in persuading companies to overhaul their businesses, with eBay (EBAY) one of the most recent examples in the technology sector. ... But the outcome of Elliott's efforts in other situations such as AT&T (T), Twitter (TWTR), and SoftBank Group (SFTBY) was, by comparison, nothing to write home about." Much of the media, and many investors, "celebrate an activist investor's appearance in a company as though it's a white knight riding to rescue small investors from incompetent managements. But activists' prescriptions—typically focused on selling assets, buying back stock, or replacing a CEO—work only some of the time. And they may completely miss the mark if a company is dealing with structural change in an industry that will take a few years to sort through," says Peers. "An activist investor, even one as thoughtful as Elliott, may be able to score some quick successes that temporarily boost a company's stock price. But those gains often are fleeting."
Seamus Gillen, director of Value Alpha, writes that a recent opinion piece by University of Cambridge corporate law professor Brian Cheffins concerning governance developments in Britain is most definitely a provocation. Cheffins calls for the abolition of U.K. corporate governance code, but Gillen opposes this. "I have never been a great fan of code per se, and there is no doubt that code can induce in a board of directors a great sense of ennui and apathy, and a willingness to tick boxes," he explains. "What matters is governance, not code." Noting he has worked with directors from roughly 50 nations, Gillen writes, "the existence of code has helped us have the conversation about what it really means to run their organization well. Let us continue to challenge the directors who fail to see the opportunities that come with having that conversation." In concluding, Gillen cites the 30th anniversary of the publication of the Cadbury Report, the first governance code, in arguing that Britain should "not become the country that fails to understand that code, whatever its shortcomings, has helped make the business world a far better place."
The U.S. Securities and Exchange Commission voted, three to two, to propose new amendments to Rule 14a-8, the shareholder proposal rule. The SEC is proposing to amend three of the substantive exclusions on which companies rely to omit shareholder proposals from their proxy materials. The “substantial implementation” exclusion would be amended to specify that a proposal may be excluded as substantially implemented if “the company has already implemented the essential elements of the proposal.” The “substantial duplication” exclusion would be amended to provide that a shareholder proposal substantially duplicates another proposal previously submitted by another proponent for a vote at the same meeting if it “addresses the same subject matter and seeks the same objective by the same means.” The resubmission exclusion would be amended to provide that a shareholder proposal would constitute a “resubmission” if it “substantially duplicates” a prior proposal by “address[ing] the same subject matter and seek[ing] the same objective by the same means.” Almost half of the no-action requests the SEC staff received under Rule 14a-8 in 2021 were based on these three exclusions. The SEC said the new proposal is designed to “improve the shareholder proposal process and promote consistency by revising three of the substantive bases for excluding a shareholder proposal under the rule.” However, the two dissenting commissioners seemed to view the proposed changes as an effort to undo or circumvent the balance achieved by the 2020 amendments without actually modifying those aspects of the rules.
A survey by IR Magazine sister publication Corporate Secretary determined that fewer boards at North American companies are tying their executives' compensation to environmental, social, and governance (ESG) than those in Europe. Sixty percent of European governance professional respondents say their board links executive compensation to ESG, versus 37% of those in North America. Investors are increasingly eager to see ESG factored into executive compensation in order to incentivize management to meet goals like improving diversity or reducing greenhouse gas emissions, which they subsequently expect to enhance financial performance or evade various risks. Worldwide, 44% of respondents say their board ties executive compensation to ESG metrics, while 45% say their board does not; 33% of respondents at small caps and 42% of those at large caps say their board links compensation to ESG, compared to 55% of those at mid-caps and 58% of those at mega-caps. Globally, 72% of respondents who note that executive pay is tied to ESG say environmental issues such as climate change, water, biodiversity, and pollution are the metric cited most often, followed by health and safety (48%); diversity, equity, and inclusion (DE&I) (44%); corporate culture (39%); supply-chain management (19%); and community relations (17%). Only 47% of North American respondents whose board links executive compensation to ESG metrics say they use environmental issues, versus 96% of European respondents. Globally, respondents at small-cap companies more often cite health and safety (73%) than their larger company counterparts, while those at mega-caps more frequently refer to DE&I (64%) than do peers at smaller issuers. Meanwhile, 60% of respondents at small-cap companies say the compensation committee primarily oversees executive compensation, compared to 90% of those at mid-cap companies. Worldwide, 75% say their board uses outside advisers on executive compensation matters, while 27% of those at mega-caps say their board's primary discussions on compensation are conducted in the first quarter of the calendar year.
A plan by the U.S. Securities and Exchange Commission (SEC) to update the grounds on which companies may be allowed to exclude shareholder proposals looks set to divide opinion along traditional lines. The SEC last month proposed amendments to Rule 14a-8, which governs the process for including shareholder proposals in a company’s proxy statement. The rule provides several bases on which companies can apply for no-action relief if they exclude a proposal. The proposed amendments would revise three of these bases for exclusion. The proposals follow on from the SEC’s division of corporation finance last fall updating its guidance on its process for deciding whether to give no-action relief to companies seeking to exclude shareholder proposals. The division rescinded three staff legal bulletins introduced during the previous administration in a move widely seen as making it less likely that it would grant such relief and, in turn, meaning that a wider array of environmental, social, and governance (ESG) proposals would get onto proxy statements. Industry professionals say that expectation has come true. According to a report from Proxy Impact and As You Sow, a record-breaking 529 ESG proposals were filed this year. More recently, those groups and the Sustainable Investments Institute reported that in the six months to the end of June a record-breaking 282 votes were taken on ESG shareholder proposals. Groups behind ESG-related shareholder proposals are broadly positive about the planned changes to Rule 14a-8. Issuers and their counsel who seek Rule 14a-8 relief to omit proposals are expected to be less pleased with the proposed changes.
Global asset manager Schroders (SHNWF) expects environmental, social, and governance (ESG) investment to mature and enter the mainstream this year, as it polled 770 institutional investors worldwide with $27.5 trillion in assets for its annual Institutional Investor Study. The firm said previous years' strong performance fueled ESG investment interest and appetite, with money managers reporting $28.03 trillion in global assets managed under ESG principles at the end of last year, a more than 20% gain from the year before. "However, as interest rates, inflation, and energy markets rise, and 'ESG friendly' expensive growth stocks sell off, investors are being forced to re-assess and re-define ESG investment for themselves," Schroders said. "This recalibration has brought questions surrounding performance, ESG data comparability, and investment tactics to the top of U.S. investors' minds." The issue of sustainable investment performance appears to weigh more heavily on U.S. shareholders than those elsewhere. Survey respondents also indicated that comparable data, increased transparency, and better reporting on ESG investment are necessary, as are quantitative evidence and data to support investors' comfort with ESG investing. Schroders said it is critical that transparent and comparable data is widely accessible and broadly comprehensible. When taking various sustainable investment opportunities under consideration, two-thirds of U.S. respondents said they wished to invest in funds or solutions that focus mainly on delivering financial returns while broadly integrating ESG factors, compared to the 58% global average. Institutional investors also placed greater emphasis on active ownership this year, with 35% considering it important or very important, versus 29% last year. "As the performance of naive, passive ESG strategies falters and the regulators circle the wagons, sustainable investing is at a critical juncture," said Schroders' Marina Severinovsky. "Investors are clear that they need more quantifiable evidence of the value and impact of ESG, and more clarity and transparency into how this investing is practiced and measured."
Some 31% of board members at Fortune 500 companies are women, and that number declines to 7% for non-white women, according to Mogul, one of the globe's biggest recruiting platforms for diverse executives. Of 5,403 board members, 69% are male, and 78.5% are white. Mogul's Board Diversity in 2022 report found that 16 companies within the Fortune 500 have no ethnic minorities on their boards; three have no women or minorities; and none of the boards have Native Americans, whether male or female. “To date, there are not 100 diverse boards within the Fortune 500, which highlights how much work needs to be done,” said Tiffany Pham, founder, CEO, and chairman of the board at Mogul. “That led us to our current research and some surprising insights about leading companies, many of which need to find more diverse executives including women, persons of color, veterans, and people with a disability to serve on their boards,” she said. A report issued earlier in 2022 by executive search firm Heidrick & Struggles showed that Fortune 500 boards appointed a record number of women in 2021, and noted that 45% of the 449 board seats filled last year were female directors, an increase from 41% in 2020.
Investors are pressing for more changes at companies after the U.S. Securities and Exchange Commission (SEC) made it harder for businesses to exclude shareholder proposals from proxy statements. The SEC in November tightened the rules regarding when a company can cite “micromanagement” or lack of relevance as reasons for omitting an investor proposal from proxy statements, ahead of annual meetings. The SEC specifically said proposals that raise issues of broad social or ethical concern may not be excluded. Already, shareholder proposal numbers are on the rise. Investors submitted 650 proposals to S&P 500 companies as of July 29, up from 613 proposals and 556 proposals during the same period in 2021 and 2020, respectively, according to data analytics firm Esgauge. All but 12 proposals this year were related to environmental, social, and governance issues. Companies have to spend more time and money to engage with investors as they submit more proposals and become more prescriptive in what they are asking for, lawyers said. The latter is resulting in a lower percentage of proposals gaining majority support. It dropped to 10.6% this year from 16.2% last year, according to Esgauge. BlackRock, meanwhile, said in a report last week that it supported fewer climate-related proposals this year. The company in part attributed the decline to “more prescriptive” proposals and declined to comment beyond its report.
A major barrier to combating climate change is the short-term views many companies and investors still take when it comes to meeting the market's quarterly expectations of financial performance. This contributes to a focus on making changes and pursuing strategies that don't fully take into account risks and opportunities beyond the immediate horizon. "Corporate boards get to decide whether they want to go the route of the phoenix or the dodo," says Veena Ramani, research director at FCLTGlobal, paraphrasing BlackRock Chair and CEO Larry Fink in this podcast. FCLTGlobal is a non-profit organization whose aim is to focus capital on the long term in support of a sustainable economy. Ramani tells podcast host Jeff Cossette that she has seen an attitudinal shift among directors on climate change. "One major reason is that the impacts of climate change are clearly visible all around us," she says. "The transition consequences of climate change are all around us as well. [They and] the transition costs of climate change are the risks a company faces, given that the market context is changing." Ramani points to a combination of other factors such as capital flows, global policies, and even litigation as factors causing boards to pay attention to climate-related risks and opportunities. She also notes that demonstrating expertise in the field makes directors attractive candidates to join other boards. She says investors aren't looking for directors with scientific expertise but for directors who have knowledge and understanding of what climate change means and what it means in the specific context of the company they oversee. They also want to see individuals who can translate this knowledge into what it means to be a corporate director: the impact on strategy, capital allocation, risk, and long-term value creation.
The new universal proxy card (UPC) rule offers completely new opportunities to influence a portfolio company through board of directors elections. Shareholders will have much more influence over board composition. Rather than an activist deciding how much incremental change to request on a board, an activist can position a proxy contest so that shareholders decide how much change they want. Activists can model a proxy contest using expected shareholder support to create the needed strategy, and plan a slate accordingly. Control contests and classified boards are factors that complicate how to think about strategy under UPC. Activists should focus on nominating people and not a slate. With a sound UPC strategy, instead of settling for a couple or even just one seat, an activist can aim higher. Or, an activist that does win a meaningful number of votes, but falls short of a plurality, will still win board representation.
Environmental, social, and governance (ESG) investing and incorporating cryptocurrency into 401(k) plans have become popular topics of conversation recently, but widespread adoption of either in plan lineups still hasn't taken off. As of December 31, there was only $33.4 billion managed in ESG mandates for defined contribution (DC) plans, down 2.7% from the previous year according to data from Pensions & Investments. "We are definitely seeing an uptick in conversations around ESG from plan sponsors, (but) not seeing movement of ESG funds incorporated into plan lineups very quickly," said Matthew Brancato, principal and head of client success for Vanguard Group's institutional investor group. "I think we need clarity from the U.S. Department of Labor (DOL), which should happen this year." Among Fidelity Investments' 401(k) plan clients, 18.2% offered a sustainable fund as of March 31, an increase from 17.6% at the end of 2020 and 14.3% at the end of 2017, according to Michael Shamrell, vice president of thought leadership. On cryptocurrency, Fidelity made news in April when it announced a program where participants in DC clients' plans can place up to 20% of their 401(k) plan accounts in bitcoin in a stand-alone investment called a digital assets account. Fidelity's announcement came six weeks after the DOL issued a March 10 "compliance assistance release" telling 401(k) plan fiduciaries to "exercise extreme care" before selecting cryptocurrency as an investment option. Dave Gray, Boston-based head of workplace retirement offerings and platforms at Fidelity, said that the firm "continues to have strong interest for digital assets and the blockchain. ... We are on track to launch our first plan sponsor clients this fall."
U.S. Securities and Exchange Commission (SEC) proposals to change rules governing proxy-voting advice have elicited dissenting opinions. The SEC on July 13 voted to rescind two amendments to its rules concerning proxy-voting advice adopted under the previous administration that increased restrictions on proxy advisory firms. In a vote along party lines, the commission approved a final rule rescinding amendments adopted in 2020 that allow companies that are the subject of voting advice to be able to access that advice prior to or at the same time as it is disseminated to clients. Another amendment requires proxy advisory firms to provide clients with access to any response the company provides on voting advice before those clients vote. The "onerous provisions" the commission rescinded "could have harmed the independence, cost and timeliness of proxy-voting advice," said the Council of Institutional Investors. "Institutional investors, the primary customers of proxy-voting advisory firms, did not request or support the provisions." The National Association of Manufacturers (NAM) has a different view. "Our hope for the 2020 rules was that it would improve the mix of decision-useful information for investors so that they had the full picture of what companies and proxy firms were saying and could then cast an informed vote," said Charles Crain, senior director of tax and domestic economic policy at NAM. "We don't have a good answer as to what the impact actually was because the SEC unlawfully did not allow the 2020 rule to take effect." The NAM on July 21 filed a lawsuit in U.S. District Court in San Antonio, alleging the commission exceeded its authority in rescinding the two amendments. A similar lawsuit was filed against the SEC July 28 in the U.S. District Court in Nashville by the U.S. Chamber of Commerce, the Business Roundtable, and the Tennessee Chamber of Commerce & Industry. While there is much debate over the amendments the commission rescinded on July 13, there's another amendment from the 2020 rule-making that it left intact. In 2020, the commission also approved an amendment making clear that proxy-voting advice generally constitutes a solicitation. Glass Lewis would like the SEC to scrap the 2020 rule in its entirety, though welcomed its partial rescission. "While we continue to disagree with the SEC's characterization of proxy advice as a solicitation, with these changes, the United States' regulatory regime will more closely align with the approaches of most other major jurisdictions, which focus on preserving the independence, quality and timeliness of the proxy advice that institutional investors depend on," said Nichol Garzon-Mitchell, Glass Lewis' chief legal officer and senior vice president of corporate development. Institutional Shareholder Services said the SEC's July 13 "action misses the mark by failing to address the most critical defect; namely, the reclassification of proxy advice provided in a fiduciary capacity as proxy solicitation." ISS has challenged the 2020 rule-making in court, and oral arguments began July 29 in the U.S. District Court for the District of Columbia, Washington.
The 2020 updates to proxy advisory rules were the result of a thorough process that was conducted by the U.S. Securities and Exchange Commission (SEC) staff across 10 years and two politically distinct administrations. Yet the framework implemented by the 2020 rules has been substantially gutted in the span of just a few months—without ever having taken effect. In late 2021, the SEC proposed amendments to the 2020 rules that substantially revoked the new conditions under which proxy advisory firms could provide advice through an exemption to the content and filing requirements of the federal proxy rules. These new amendments were approved as expected earlier this month. The 2022 reversal is a clear sign that the SEC is now prioritizing the interests of institutional investors, and is good news for Institutional Shareholder Services and Glass Lewis. But the latest developments cannot be seen as a necessary course correction and instead amount simply to a policy shift. This unwelcome instability in the regulatory environment casts unfortunate doubt on the SEC's commitment to being a nonpartisan, market-oriented regulator.
Jefferies LLC's Christopher Young expressed his perspective on the "duopoly proxy advisory services" on contested merger and acquisitions and director challenges, with regards to how corporations and activists consider their recommendation reports. He explained that a lack of support from Institutional Shareholder Services (ISS) or Glass Lewis sends a clear signal that an activist investor's cause is finished. "In my experience, if Glass Lewis and ISS are aligned on recommendation, that outcome tends to happen. It can either be a vicious or virtuous circle," Young said.
Columnist Lila MacLellan applauds the scores of new board directors who have been summoning the confidence to enter boardrooms for the first time in recent years. Boards are increasingly prioritizing diversity—race, gender, and even work experience. As a result, their recruits are more likely to be people without directorship experience, states organizational psychologist Laryssa Topolnytsky, a partner at the talent and consulting firm Heidrick & Struggles. This is a sea change that presents a unique opportunity to devise new guidelines during the introductory period of the onboarding process.
The U.K. Financial Reporting Council is set to review the Corporate Governance Code, but policymakers should consider abolishing it, University of Cambridge corporate law professor Brian Cheffins writes in an opinion piece. Strengthening and expanding the code is unlikely to add value in the corporate governance realm, considering there is no definitive evidence that better corporate governance leads to better corporate performance. One problematic feature of the code is the prominence given to stakeholders. An inherently flawed stakeholder protection mechanism, the code depends on lobbying for change by stakeholders for enforcement. Shareholders sometimes may be stakeholder-friendly, but most are focused on maximizing returns. Instead, the listing rules of the Financial Conduct Authority could be amended to mandate certain corporate governance-related disclosures. A move toward concise governance disclosure requirements would align with modern regulatory trends.
Nelson Peltz, Trian Partners CEO and founding partner, discusses turning around companies, deciding on which ones to invest in, and why he dropped out of Wharton to become a ski bum. He speaks on "Bloomberg Wealth with David Rubenstein."
Elliott Management is an investor in both PayPal (PYPL) and Pinterest (PINS), David H. Lerner writes in an opinion piece. The CEO of PayPal previously was rumored to have pitched a deal for Pinterest, but the move was roundly criticized at the time and PayPal's stock took a big hit. The bearish rationale for rejecting the union was that PayPal was ranging too far in wanting to acquire a social network and that the move had nothing to do with payments. PayPal needs to come up with a new road map for growth. With Elliott able to explain the value to investors, at this point a Pinterest deal would be welcome. Pinterest is priced right and the founder is no longer in the CEO seat. If Pinterest can make this pivot without upsetting the current user base, an acquisition of the company would be a master stroke. PayPal was rumored to have made an offer at $45 billion. The market cap of Pinterest is now $11 billion.
The U.S. Securities and Exchange Commission should adopt new regulations on proxy advisors due to their environmental, social, and governance (ESG) ratings, Corporate Citizenship Project national chairman Terry Branstad writes in an opinion piece. Previously a public relations and marketing issue, ESG ratings can now have material impacts on shareholder value. However, ESG ratings often do not reflect a company's environmental and social impact because of potential conflict of interest involving proxy advisors. Anglo American has received top marks from Institutional Shareholder Services even though its De Beers Group subsidiary has been linked to "blood diamonds" and indentured servitude. The SEC should require proxy advisors to spin off their ESG consulting businesses, which present a significant conflict of interest detrimental to investors and public companies that do not engage them. The SEC also should require proxy advisors to publicly disclose their quantitative and qualitative methodology in calculating ESG scores.
According to PwC’s 2021 Annual Corporate Directors Survey, environmental, social, and governance (ESG)-related issues are the number one topic investors most want to discuss with board members during shareholder meetings. Further, 64% of directors now say ESG metrics are linked to company strategy—a 15-point increase from the year before. Ninety-five percent of S&P 500 companies now publish some sort of ESG data, and nearly 60% use ESG metrics as part of their executive compensation plans in 2022, primarily tied to bonuses. The big winner in the governance category is diversity and inclusion. Now one of the most commonly focused-on metrics, it appears to be emerging as a proxy measure to fast-track ESG progress. Alison Taylor, an adjunct professor at NYU Stern School of Business and executive director of its Ethical Systems research platform, and Brian Harward, a lead research scientist at Ethical Systems, are skeptical of the trend. “The current state of ESG efforts by corporations is disappointing but understandable,” they wrote in a recent opinion piece. “Investors pressurise them into what amounts to a box-ticking, virtue-signalling exercise – and it shows. ... Declaring diversity an ESG target rather than a baseline expectation appears to be a self-serving strategy to generate positive PR.” Taylor and Harward suggest that this is already leading to window-dressing behavior that ignores deep systemic issues that any responsible company should face. The solution is to stop short-term thinking. When a company decides that diversity is essential to its core purpose, it’s a matter of “striv[ing] to meet customer, supplier, and employee expectations over the long term,” say Taylor and Harward. Well-compensated executives don’t need new bonuses to do their job, they argue. “Executives could then do what they were hired to do: bring new ideas to the table, assess the risks of their actions, and lead others,” which means tapping relevant new perspectives. “They should be asked to create plans for how their division or function can address the diversity imperative, and encouraged to compete with each other and test micro innovations.”