Media Center

Featuring all breaking news and in depth articles and editorial press coverage pertaining to shareholder activism and corporate governance.

Toshiba Unit Hacked by DarkSide, Conglomerate to Undergo Strategic Review
Exxon Investor Gets a Boost as ISS Supports Three Nominees
Boards Are Adding More Women and Minorities Ahead of Nasdaq Rule
Seven & i Shares Surge After News of ValueAct's Stake Build-Up
Fresh From Icahn Settlement, FirstEnergy Weighs Divestitures -Sources
Prudential Shares Fall as Jackson Demerger Shifts to Second Half
EHealth Settles With Starboard, Hands One Board Seat to Activist
Danone to Return Most of Chinese Divestment Proceeds to Shareholders
Proxy Advisor PIRC Recommends Vote Against Chevron CEO
Pershing Square Holds Nearly 6% of Domino's Pizza, Ackman Tells WSJ
Proxy Advisor PIRC Recommends Nominees in Exxon Boardroom Battle
ValueAct Takes Stake in 7-Eleven Owner, Says Changes Could Boost Share Price
Climate Resolutions Prevail at Phillips 66 – but Not at BP
Major Exxon Investor Joins Investor Battle to Reform Oil Giant
Wall Street Avoids Board Diversity Mandate in Modest Bill
CVR Energy to Distribute Delek Stake as Special Dividend
AstraZeneca Chief Suffers Investor Rebellion Over Pay
Vote Against Shell's Energy Transition Strategy, PIRC Urges Investors
Honest Capital Opposes $2.8 Billion Sale of At Home Group
Caligan Takes Stake in Covid-19 Test Maker Fluidigm, May Eye Changes
FirstGroup Investor Coast Capital in New War of Words, This Time With a Union
Proxy Adviser ISS Recommends Vote Against Leonardo CEO Liability Action
Elliott Management Has Stake in Duke Energy
Starboard Nominates Directors to Box Inc.'s Board
Starboard Puts Forth Box Board Slate Saying Promises Unkept
Big Oil Braces for Climate Votes as Investor Pressure Mounts
Barclays Investor Edward Bramson Sells Entire Stake
Delek Shareholders Vote for Company-Nominated Board Slate
U.S. TV Firm Tegna Defeats Hedge Fund Standard General in Proxy Vote
Nelson Peltz Sold More Than $350 Million Worth of P&G Stock in the Open Market This Week
Investor Group Pushes Exxon Board for New Leadership to Challenge CEO
Lessons From TEGNA's Second Straight Proxy Fight Win
Elliot Management's Reported Stake in Duke Energy Puzzles Investors
Japan Inc. Braced for Fresh Hostile Bids
BlackRock Uses Its Voting Power to Support Environmental and Social Issues
Video: Bill Ackman at Future of Everything Festival
The Promise of Diversity, Inclusion, and Punishment in Corporate Governance
How to Repel Elliott? Undo a $40 Billion Discount
Analysis: What Happened When a U.S. State Required Details on Corporate Diversity
Carl Icahn's Investment Portfolio Gets a Shot of Energy
The Effects of Mandatory ESG Disclosure Around the World
Bill Ackman Says Sustained Inflation Could Be a 'Black Swan' Risk for the Stock Market
Barclays: Bramson's Sherborne Defeat Does Not Mean Banks Are Safe From Activists
Corporate Activism: "Barbarians At The Gate" No More
Bill Ackman On GameStop and Shareholder Activism
SEC Reopens Universal Proxy Comment Period
Why Is Corporate Virtue in the Eye of the Beholder? The Case of ESG Ratings
Proxy Voting Adds ESG Leverage to Retirement Plans
The SEC's Latest Risk Alert Puts ESG Investing in the Crosshairs

5/13/2021

Prudential Shares Fall as Jackson Demerger Shifts to Second Half

Reuters (05/13/21)

Shares in Prudential Financial, Inc. (PRU) fell 5% on Thursday as the life insurer said the spin-off of its U.S. business would not take place until the second half. Analysts were expecting the demerger, announced last year following pressure from investor Third Point, to take place this month. Prudential had previously said the demerger would take place in the second quarter. The company said that while regulatory approvals for the demerger had been received from Michigan and New York, “regulatory engagement” was continuing so detail on Jackson’s first-quarter performance could be included. “The U.S. demerger will complete Prudential’s structural transformation into a business solely focused on the growth opportunities of Asia and Africa,” chief executive Mike Wells said in a trading statement ahead of the company’s annual general meeting on Thursday. Prudential’s shares were down 5.4% at 0930 GMT, one of the worst performers in the FTSE 100. Jefferies analysts described the demerger delay as “disappointing”, while retaining their “buy” rating on the stock. Wells said that while vaccination roll-outs should bring “a gradual return to more normal economic patterns”, uncertainty remained over the speed of roll-outs and their success. Prudential reiterated that it planned a $2.5-3 billion equity raising once the demerger is completed, likely to be through a global offering to institutional investors and a public sale in Hong Kong to retail investors.

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5/12/2021

Climate Resolutions Prevail at Phillips 66 – but Not at BP

Pensions & Investments (05/12/21) Bradford, Hazel

A majority of Phillips 66 (PSX) shareholders approved a resolution Wednesday calling for the company to set concrete emission-reduction targets, according to preliminary results reported by climate activist investor group Follow This. Phillips 66 did not disclose the votes but confirmed the majority needed to approve the resolution filed by Follow This. A similar Follow This resolution for ConocoPhillips (COP) was approved Tuesday by 58% of shareholders. The Phillips 66 vote "raises the expectations for the upcoming votes at Shell (RDS.A) and Chevron (CVX)," said Mark van Baal of Follow This. "Big Oil can make or break the Paris Accord. Investors in oil companies are saying now: we want you to act by decreasing emissions." A Follow This climate resolution at BP for the company to map out a more aggressive plan for reducing emissions in line with the goals of the Paris Agreement fell short of the majority needed Wednesday. It garnered 20.7% support — a jump from 8.4% in 2019. The California Public Employees' Retirement System and the global investor engagement initiative on climate change, Climate Action 100+, have been criticized for not supporting the BP shareholder proposal. "We appreciate that NGOs are rightly calling for progress," said Anne Simpson, Climate Action 100+ Steering Committee member, and managing investment director for board governance and sustainability at CalPERS. "However, in this case the proposal duplicates a prior resolution, which was already passed." "A further concern for us is the binding nature of the proposal. The issues are complex and moving fast," she said. "If companies are not moving at the pace and scale needed, the next step for investors is voting on board members, as we are at Exxon (XOM), where we're supporting four new directors to oversee the company's transition to net zero."

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5/11/2021

Wall Street Avoids Board Diversity Mandate in Modest Bill

Bloomberg Tax (05/11/21) Smith, Paige; Hood, David; Bennett, Jennifer

Rep. Gregory Meeks (D-N.Y.), Rep. Carolyn Maloney (D-N.Y.), and Sen. Bob Menendez (D-N.J.) support legislation requiring companies to detail the racial, ethnic, and gender composition of their boards and executive officers to the Securities and Exchange Commission (SEC). According to diversity data on the nation's largest companies compiled by Bloomberg, 90 of the 100 polled corporations said their boards feature a director from an underrepresented background. The bill would obligate companies to post their numbers in proxy statements or yearly reports. Critics say the measure, in lieu of enforcement instruments, hiring goals, or mandates, will likely not encourage the widespread change its authors ultimately desire. "All of the reporting in the world can take place, but if there's actually no change, it's going to be insufficient," said Julie Nelson at racial justice non-profit Race Forward. The proposal joins other efforts to boost corporate board diversity, including a California statute that requires a minimum number of minority members on boards, and a similar proposal put forth for all NASDAQ (NDAQ)-listed companies. The SEC may drive the diversification push even without legislation, as confirmed SEC Chairman Gary Gensler said he asked agency staff to make recommendations about coaxing companies to disclose board-diversity data. He recently said at a House Financial Services Committee hearing that investors "increasingly want to understand these particular issues around diversity and more broadly human capital, both. And it's driven by what investors want to see and I've asked staff to try to serve up some suggestions on this."

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5/11/2021

Vote Against Shell's Energy Transition Strategy, PIRC Urges Investors

City A.M. (05/11/21) Godfrey, Hannah

Shareholder advisory The Pensions & Investment Research Consultants (PIRC) has recommended investors vote against Royal Dutch Shell's (RDS) non-binding resolution on its energy transition strategy at its annual meeting next week. PIRC said Shell’s strategy to cut emissions “does not seem to have a clear plan for the competitive aspects of the energy transition.” PIRC also recommended supporting a resolution filed by activist group Follow This urging Shell to set “inspirational” targets to battle greenhouse gas emissions. Shell said the Follow This resolution was “redundant,” urging shareholders to oppose it and “focus attention instead on the more detailed proposal from Shell which will help move the company forwards.” In February, Shell unveiled a plan to reduce planet-warming carbon emissions to net zero by 2050. U.S. proxy advisory company Glass Lewis last month recommended investors support the Shell resolution and vote against the one put forward by Follow This. PIRC said Shell’s climate resolution lacked individual accountability for the board and does not list the chairman as responsible for the strategy. It also criticized Shell’s plan to reduce carbon emissions “in step with society,” saying it should be leading instead. Shell’s emission reduction targets are intensity-based, representing emissions per unit of energy produced, technically allowing higher production. PIRC said it would prefer to see Shell set out targets for absolute emission reductions, not intensity-based. It also said the strategy appeared inconsistent with policy objectives and some of the targets.

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5/10/2021

Elliott Management Has Stake in Duke Energy

Wall Street Journal (05/10/21) Lombardo, Cara

Elliott Management Corp. has built a stake in Duke Energy Corp. (DUK) and is calling for the company to add directors to its board and possibly take other actions to increase its stock price, according to sources. Duke has been in talks with Elliott, the sources said. Elliott may also call for Duke to sell some assets or make operational improvements, some of the sources said. The size of Elliott's stake couldn't be ascertained. Duke has a market value of approximately $79 billion and about $55 billion of long-term debt. In recent months, Moody's Investors Service and others have lowered the energy company's long-term debt rating, partly in response to the recent settlement of litigation concerning the cleanup of ash from its coal-fired plants. Duke in a statement didn't comment on Elliott's stake but mentioned its "strong progress over the last year that has cleared a path forward for growth, resolved equity needs at a premium valuation, settled rate cases and coal ash litigation, and accelerated our clean energy transformation, all of which has led us to increase our long-term EPS growth rate and outperform the S&P Utility Index." Duke on May 10 reported mixed first-quarter results, with better-than-anticipated profit and revenue just under what analysts had expected. The company had $992 million in net income, up from $938 million for the same period in 2020, and total revenue of $6.15 billion, up from $5.95 billion. Elliott has a long record of investing in power and utility companies. Meanwhile, Carl Icahn recently took a stake in FirstEnergy Corp. (FE) of Ohio, aiming to push the utility to boost its compliance and settle litigation resulting from a bribery scandal. The utility later entered into an agreement to add two Icahn appointees to its board and has since said it started talks with the U.S. Department of Justice to resolve the litigation.

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5/9/2021

Starboard Puts Forth Box Board Slate Saying Promises Unkept

Bloomberg (05/09/21) Deveau, Scott

Starboard Value (SVAC) has presented a minority slate of board nominees for Box Inc. (BOX) to compete with CEO Aaron Levie and two other directors seeking re-election. In a letter to Box shareholders, Starboard said it has nominated four directors for the three seats in contention, with the additional candidates giving it some flexibility if Box adds seats ahead of the annual general meeting. Starboard, with a roughly 8% stake in Box, reported investing in the software company two years ago because of an opportunity to drive profitability, improve capital allocation, and augment governance to narrow the valuation gap Box trades at relative to competitors. Starboard claims Box has showed insufficient improvement since, despite management and the board's repeated pledges to do so. "The valuation gap has further widened during this time," declared Starboard Managing Member Peter Feld. "We believe opportunities for improvement still exist today, and our goal is to work with Box to help the company finally deliver on its promises." Starboard is known for wanting CEOs of the companies it invests in to have board seats, and if Levie was ousted, Starboard could push to establish a new seat for Box's CEO. Starboard announced last week that it intends to nominate directors without disclosing its plans. The move comes a year after the hedge fund reached a settlement with Box that added three new directors. Starboard said of particular concern were two recent financing transactions that were arguably unnecessary, including Box's agreement in April to issue $500 million in convertible shares to KKR & Co. (KKR) and grant it a board seat. Box said the proceeds from the deal would be used to repurchase common shares. The securities issued comprise more than 10% of Box's outstanding shares, and require KKR to vote along with any board recommendations. Feld said the transaction serves no business purpose, and in the face of a potential proxy fight with Starboard, it was conducted to "buy the vote" and dampen the voice of common shareholders. Box said last week that it continues to engage with Starboard but thinks additional board changes are unnecessary. It noted seven of its 10 directors joined the board within the past three years, and the company was on track for a revenue growth rate of as much as 16% by 2024 and operating margins of up to 27% over the same time. Box added that the KKR transaction resulted from a strategic review overseen by a board committee, including the directors Starboard supported last year, and will let shareholders decide whether to sell down their shares or engage in any upside potential with KKR as a committed partner.

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5/7/2021

Big Oil Braces for Climate Votes as Investor Pressure Mounts

Bloomberg (05/07/21) Hurst, Laura

Shareholders in Royal Dutch Shell Plc (RDS.A), BP Plc (BP), and Total SE (TOT) are demanding greater action on climate change, with resolutions on slashing carbon emissions set to dominate this month's annual general meetings. Activist group Follow This will propose a motion at BP on May 12 and at Shell on May 18, urging them to establish emission goals in line with the Paris Agreement. Shell's board has rejected the resolution, claiming its own plan to pump less oil, generate more gas and renewables, and cut emissions over the next 30 years is "more comprehensive." BP is also asking investors to spurn the resolution. Still, these proposals up the pressure on companies still depending on fossil fuels to underwrite the transition to cleaner energy. Shell agreed in February to put its transition plans to a vote, as did Total in March. "This has all come along faster than everyone expected," and the looming votes give "very little time to review the commitments," said Shu Ling Liauw at the Australasian Center for Corporate Responsibility. "It's a bit of game theory and opportunism to cement themselves as having endorsed climate plans," but "that doesn't mean there's substance." Backing varies among investors. In the Netherlands, resolutions tabled by Follow This have been supported by large players like NN Investments and Aegon NV (AEG), yet support among the largest U.S. investors is wanting. BlackRock Inc. (BLK), for example, has always opposed Follow This's proposals. Norway's sovereign wealth fund, which has a $2 billion stake in BP, also said it would side with the company. Smaller Shell investors like Sarasin & Partners LLP and U.K. local authority pension funds have pledged to support Follow This, but advisory firms Glass, Lewis & Co. and Institutional Shareholder Services are backing the oil giants. While large oil companies have in recent years unveiled plans to cut carbon output, Climate Action 100+ said none of the majors have fully detailed how they will end their net emissions.

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5/7/2021

Delek Shareholders Vote for Company-Nominated Board Slate

Convenience Store News (05/07/21)

Delek US Holdings Inc. (DK) said its shareholders have supported its board nominees following a preliminary vote count. The company declared that investors "overwhelmingly voted to elect all eight of its highly qualified director nominees." Candidates included Uzi Yemin, William J. Finnerty, Richard J. Marcogliese, Gary M. Sullivan Jr., Vicky Sutil, Laurie Tolson, David Wiessman, and Shlomo Zohar. "We appreciate the support of our shareholders. Moving forward, we remain firmly focused on overseeing and executing the company's strategy and continuing to evaluate opportunities to drive value," Delek stated. "We look forward to maintaining our constructive engagement with our shareholders and remain committed to acting in the best interests of the company and all Delek shareholders." The vote came amid calls from CVR Energy Inc. (CVI) to implement changes, including divestment of Delek's convenience stores, and halting operations at the Krotz Springs and El Dorado refineries and repurposing them as terminals, renewable diesel production, or for other purposes. CVR Energy is majority-owned subsidiary of Icahn Enterprises LP (IEP) and owns roughly 15% of the outstanding common stock of Delek US. CVR Energy nominated three candidates to Delek's board, but Delek urged its shareholders to support its board's nominee slate. The preliminary results imply that investors have backed all other proposals considered at Delek's annual meeting. All Delek director nominees received approximately 90% or more of the voted shares, not counting those of CVR Energy.

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5/6/2021

Investor Group Pushes Exxon Board for New Leadership to Challenge CEO

Nasdaq (05/06/21) Herbst-Bayliss, Svea; Hiller, Jennifer

The Coalition for a Responsible Exxon (CURE) called on Exxon Mobil's (XOM) board to recruit directors and senior executives with energy and clean fuels experience, echoing calls at the center of an ongoing proxy fight. CURE, which includes Seattle City Employees Retirement System, Dana Investment Advisors, and Interfaith Center on Corporate Responsibility, called on the oil company to tie executive pay more closely to financial performance and greenhouse gas reduction. Exxon shareholders on May 26 are set to vote on the biggest corporate battle to be decided on environmental, social and governance criteria. Pitted against Exxon is the hedge fund Engine No. 1, which has nominated four directors. A spokesperson for CURE declined to say how many shares of Exxon its 135 members hold. Overall, the group represents $2.5 trillion in assets, it said. CURE proposes broadening board and management experience, and splitting the Exxon chairman and chief executive roles. Current outside directors include only one member with energy industry experience and overall the board does not have the "confidence or expertise to challenge a powerful CEO/Chairman," it wrote. The combined CEO/chairman benefits shareholders and executive pay is determined by a committee of non-employee directors and gear to provide long-term shareholder returns, Exxon spokesman Casey Norton said. The group's report did not recommend votes for or against existing Exxon directors. Its members do plan to vote for new board leadership, the report said.

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5/13/2021

Lessons From TEGNA's Second Straight Proxy Fight Win

Harvard Law School Forum on Corporate Governance (05/13/21) Kirman, Igor; Niles, Sabastian V.; Wong, Natalie S.Y.

TEGNA Inc. (TGNA) shareholders demonstrated their strong confidence in the company at its May 7 annual meeting by re-electing all 12 incumbent nominees and none of the three candidates proposed by Standard General, which owned 7% of TEGNA shares. Last year the hedge fund ran four candidates, which also ended in defeat. With its focus on operational deficiencies failing to gain momentum thanks to TEGNA's record share price and strong subscription revenues, Standard General shifted tactics by citing diversity, equity, and inclusion (DE&I) issues, initially based on an incident mentioned by a nominee who exited midway through the campaign for conflict reasons, but later extending to broader DE&I themes at a previously unseen level. This strategy also proved unsuccessful, given TEGNA's long-standing devotion to DE&I and an outstanding track record of integrating and advancing DE&I in regards to its workforce, board, and business initiatives. All three proxy advisory firms took TEGNA's side, with Institutional Shareholder Services stating that "this is not a board that has been caught flatfooted or is reactive regarding issues of diversity and inclusion...the board's actions to rewrite all of its committee charters to include diversity oversight responsibilities and the company's hiring of a senior executive to oversee diversity show that the board had already focused its attention on DE&I." Standard General's two proxy contests embody a growing trend of repeated campaigns waged by a dissident at the same company, with no regard to the outcome of the initial campaign, the contest's economic cost, and the likelihood of winning in the second round. TEGNA's victory in the first proxy contest based largely on DE&I issues shows that a firm can still defend an activist campaign on the merits. Robust financial and operational performance and delivery of shareholder value, plus a strong record on ESG and DE&I issues, will best protect companies against future dissident campaigns.

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5/13/2021

Elliot Management's Reported Stake in Duke Energy Puzzles Investors

Charlotte Business Journal (05/13/21) Downey, John

Reports that Elliott Management Corp. has taken a large stake in Duke Energy Corp. (DUK) and pressed for changes has raised questions for investors. Guggenheim analyst Shahriar Pourreza says the timing for Elliot’s intervention — if true — appears odd. “The initial take we got from so many investors was, ‘Geez, if this is true, where were the activists a year ago? Why now?’" he says. A year ago, Duke had the troubled Atlantic Coast Pipeline hanging over its head, it faced significant liability risk because of a lingering dispute over its coal-ash liability in the Carolinas, and it needed to raise $1 billion in equity sales to finance its capital pending. A company with that much going on is often a target for activists who will move in, look to sell assets and simplify operations to increase cash flow and return to shareholders. But in the last 12 months, Pourreza says, Duke has done taken a lot of value-creating steps on its own and, as he wrote in a note this week, “is in some of the best shape it has been in recent memory.” Analyst Mike Doyle at Edward Jones agrees the move is puzzling. Duke's proposed sale of a 19.9% stake of its Duke Energy Indiana utility to the Singapore's sovereign wealth fund has solved its need for new equity sales, and it resolved its coal-ash liability issue in North Carolina, where it was most acute. The utility wrote off the Atlantic Coast Pipeline, which had become a growing risk for it and partner Dominion Energy Inc. Both Pourreza and Doyle say the ultimate goal of Elliott Management's stake in Duke might be to push the utility to reconsider its rejection of reported overtures from NextEra Energy Inc. (NEE) to purchase the power company or its Florida utility. Elliot Management founder Paul Singer and his fund have been active in a number of utility deals over the years. And activist activity in that industry does appear to be picking up recently, Pourreza notes, as some power companies have failed to keep up with changes in the industry.

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5/13/2021

Japan Inc. Braced for Fresh Hostile Bids

Financial Times (05/13/21) Lewis, Leo

Japanese companies are more likely to face hostile takeover bids, a previously taboo practice, as a result of Japan updating its mergers and acquisition (M&A) guidelines in 2019. The update recommended that companies organize special committees to examine incoming bids, rather than spurning them sight unseen. Other changes in progress imply more bids are on the horizon. M&A professionals also say Japan's experience is under close scrutiny in the Asia-Pacific region, with certain developments hinting at a nascent market for unsolicited takeovers. Yo Ota at law firm Nishimura & Asahi says rapid innovation must accompany such rapid change. Though many investors may welcome a more assertive Japanese market for corporate control, some companies are concerned about becoming the focus of potentially harmful bids, and must resort to more innovative defensive strategies. Ota has employed tactics like the tailored "poison pill," issuing stock warrants to existing investors, which successfully helped Toshiba Machine repel a hostile bid from a fund earlier this year. An increasing number of blue-chip Japanese businesses, in addition to foreign and domestic investment funds, have dismissed concerns over the reputational risk of making a bid that the engaged firm initially declares hostile. In the past two years, Japanese companies such as optical product maker Hoya (HOCPY), travel company H.I.S., and trading house Itochu (ITOCY) have embraced the hostile bid as a legitimate tool for corporate growth. Mitsubishi UFJ Morgan Stanley's Kensaku Bessho projects that furniture retailer Nitori's (NCLTY) successful $2 billion unsolicited bid for rival Shimachu in late 2020 will be a catalyst for change in the Japanese market because "people did not see this deal as an evil or hostile bid." Growth in unsolicited or outright hostile takeover bids for listed companies in Japan is partly a delayed effect of the 2015 governance code and its accompanying stewardship code. Both documents have engendered increased shareholder activism that according to CLSA has made Japan the world's second-largest market, after the U.S., for ongoing activist situations. Greater attention from investors, and pressure on previously indifferent shareholders, to force management to maximize corporate value have drawn interest to the 630 subsidiary companies listed on the Tokyo Stock Exchange. Ota notes that as part of the emphasis on corporate governance and shareholder value, many companies are being pressured to eliminate the "pre-noticed" poison pill strategy to defend against hostile takeovers.

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5/11/2021

The Promise of Diversity, Inclusion, and Punishment in Corporate Governance

Harvard Law School Forum on Corporate Governance (05/11/21) Spindler, James; Meli, Jeffrey

In a recent trend, “governance inclusion mandates” intercede directly in internal corporate governance by requiring specific changes to board membership. Some are “constituency mandates,” which add representatives of a specific constituency to the board. Others are “diversity mandates,” which require minimum levels of board membership of females or members of underrepresented communities. Underlying these proposals is the conjecture that inclusive boards will, somehow, make better decisions than laissez-faire, market-constituted boards. In a forthcoming paper, the authors develop a framework to assess if, and how, board inclusion mandates can lead to more pro-social corporate decisions. They note that inclusion mandates allow firms to make their own decisions, based on their own information, and without relying upon the government to regulate optimally. However, inclusion mandates do not necessarily change corporate behavior. There are two important exceptions to this “same activity” result. First, inclusion may allow inefficient contracts to be replaced with efficient ones (for example, allowing investment in firm-specific human capital of workers). Second, inclusion will lead to socially beneficial changes where the included group would expect to bear what would otherwise be externalized harm. In order to realize these improvements, the board representative must actually be accountable to the constituency she represents. These improvements also depend on how the constituency's claims on the firm are structured; poor design can actually lead to worse incentives.

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5/11/2021

Analysis: What Happened When a U.S. State Required Details on Corporate Diversity

Reuters (05/11/21) DiNapoli, Jessica; Kerber, Ross

Illinois has passed new state requirements that companies identify the gender and race or ethnicity of each board member. Regulators say they want to see fine details such as those provided by Boeing Co. (BA), which specified which directors were women, Asian, and African American. Archer Daniels Midland Co. (ADM) was more generalized, saying its board was 55% diverse. Companies, shareholders, and elected officials will be keeping a close eye on the next steps in Illinois' atypical mandate for director-by-director declarations. Rep. Chris Welch (D-Ill.) proposed what became the 2019 Illinois board diversity reporting law, arguing that "you can't go wrong with more data." "Over time investors want more detail, rather than less," said Morningstar Inc. (MORN) CEO Kunal Kapoor. "Putting sunlight on areas that lacked it has rarely had a poor outcome for investors." Although companies are not penalized for not fully reporting their board diversity, they may do so to avoid criticism by people scrutinizing the information, which began appearing on the Illinois Secretary of State's website last year. Illinois officials in April amended a disclosure form to make more explicit the call for companies to list the self-identified race or ethnicity of each director, and gender. In a March study, University of Illinois professor Richard Benton found 66 of the 74 companies that filed forms since the law was passed supplied enough data to parse out their racial diversity. Non-white people retained about 15% of the average company's boardroom seats, versus their 40% segment of Illinois' population. Yet opposition to disclosures seems low, even among companies with incomplete filings. For example, only two of 15 directors at U.S. Cellular Corp. (USM) listed their race on a form last July, while a company spokeswoman said for a more current filing, "100% of our members have self-identified." Phyllis Lockett at CME Group Inc. (CME) said diversity disclosures should provide a breakdown by race and ethnicity to help identify what groups might be underrepresented. Equilar reports that the S&P 500 listed 9% of directors as Black as of January, up from 8% in August. Hispanics were 4.2%, up from 3.6%, and Asian or Pacific Islanders accounted for 4.5%, up from 4.4%.

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5/10/2021

The Effects of Mandatory ESG Disclosure Around the World

Harvard Law School Forum on Corporate Governance (05/10/21) Sautner, Zacharias

Frankfurt School of Finance & Management Professor Zacharias Sautner analyzes the impact of certain countries imposing mandatory environmental, social, and governance (ESG) disclosure regulations to force companies to properly disclose information on ESG issues in traditional financial reports or specialized standalone documents. Sautner and colleagues assembled a novel international dataset of country-level mandatory ESG disclosure regulations between 2000 and 2017, covering 25 countries that introduced such mandates. They observed that the uptake of mandatory ESG regulation is more likely in nations with common law origins and in countries with higher per capita carbon emissions. "Consequently, the gap between the supply of and demand for ESG information is possibly larger in common law countries, which implies a greater need for mandating ESG disclosure in such countries," Sautner states. Meanwhile, countries with higher per capita emissions greater likelihood of introducing mandatory ESG disclosures may indicate such reports are partly a disciplinary tool through which they hope to shrink their companies' carbon footprints. "Across the full sample, the percentage of firms that file ESG reports in the GRI [Global Reporting Initiative] or Asset4 database increases by 2.9 percentage points (pp) after ESG disclosure is made mandatory, a large increase relative to the unconditional frequency of 8.6%," Sautner notes. "Somewhat surprisingly, mandatory disclosure on average does not increase the quality of the filed ESG reports." Moreover, companies with lower ESG qualities are more likely to file ESG reports following introduction of mandatory disclosure, and show significant improvements in ESG reporting quality. "These effects are plausible as firms with better ESG qualities may have a higher propensity to voluntarily disclose ESG information—they are in turn less affected by mandatory disclosure requirements," Sautner writes. "Our findings suggest that mandatory ESG disclosure is most effective among firms where ESG-related concerns as well as information demands by investors are largest." Analysis also demonstrated that the accuracy of earnings per share (EPS) projections significantly rises, and the dispersion of projections significantly falls, after mandatory ESG disclosure introduction. "These results indicate beneficial informational effects resulting from mandatory ESG disclosure," Sautner says. He adds that "both the amount of ESG incidents and its significance decrease after mandatory ESG disclosure is introduced. This suggests that mandatory ESG disclosure exerts positive real effects by reducing ESG incidents." Furthermore, the acceleration of ESG information disclosure through mandatory disclosure rules may cause crash risk to decline after mandatory disclosure goes into effect.

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5/10/2021

Bill Ackman Says Sustained Inflation Could Be a 'Black Swan' Risk for the Stock Market

Business Insider (05/10/21) Graffeo, Emily

Pershing Square Capital Management founder Bill Ackman said in a recent interview that sustained inflation could cause an unexpected tailspin in the stock market. "I think one of the 'black swan'-type risks for markets is a real spike in inflation that's not just a three-month spike, that's more sustained," Ackman said. "Also, meaningfully higher interest rates, which I think will affect the discount rates that people use to value companies. And I think those could be countervailing stock-market forces." According to Ackman, trillions of dollars in stimulus from Covid-19 relief bills and President Joe Biden's infrastructure proposal, historically low interest rates, and "benign policy" from the Federal Reserve would set the country up for "explosive GDP recovery and probably inflation." He added that "you could see certainly expectations change as soon as the next few months about how accommodative the Federal Reserve will be." To combat inflation, Ackman believes investors should own businesses with pricing power. "I think inflation is going to be real, and you're going to see wage inflation. I mean, everywhere there are 'help wanted' signs. It's very hard to hire people to fill its jobs, particularly with a stimulus package which includes extra unemployment benefits," Ackman said. "So it's a lot of pressure on wages I think, which I think ultimately is a good thing but could have, again, depending on the nature of the business...a negative impact."

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5/6/2021

SEC Reopens Universal Proxy Comment Period

Harvard Law School Forum on Corporate Governance (05/06/21) Richman, Laura D.; Gray, Robert F.

The Securities and Exchange Commission (SEC) has reopened comments on the proposed mandatory use of a universal proxy for all proxy solicitations in connection with contested elections for director that are not exempt under Rule 14a-2(b). As proposed, use of a universal proxy would be permitted but not required for other types of solicitations, including, for example, a “vote no” campaign or solicitations of proxies in support of a shareholder proposal. Each party in a contested election would distribute separate universal proxy cards. Within each group on a universal proxy card, the nominees would be listed in alphabetical order by last name. A dissident that intends to solicit proxies for its own nominees in a contested election for directors would have to give the company notice of the names of its nominees. The company would be required to inform the dissident of the names of the company's nominees for directors, unless the names of all nominees have been provided in a preliminary or definitive proxy statement. As proposed in 2016, the dissident would be required to solicit the holders of shares representing at least a majority of the voting power for the election of directors in order to trigger the universal proxy requirements. The dissident's plans could change after it provides the company with notice of its intention to solicit proxies for its own nominees for directors. The proposed amendments would amend Rule 14a-4(d) so that by consenting to be named in the company's proxy statement, the nominee would also consent to be named in the dissident's proxy statement, and vice versa. Universal proxy rules would require a significant investment of resources by dissident shareholders. As part of the 2016 Proposing Release, the SEC proposed additional amendments to the proxy rules relating to voting options and standards that are applicable to all director elections.

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