Call +1 (212) 223-2282
Featuring standstill agreement and nomination deadline windows, provisions and timelines
Featuring all breaking news and in depth articles and editorial press coverage pertaining to shareholder activism and corporate governance.
A new searchable database featuring the comprehensive voting records of all top institutional investors. This includes every proposal that was up for a vote and how the investor voted.
Vodafone Group Plc (VOD) Chief Executive Officer Nick Read will step down at the end of 2022, after he failed to halt a years-long slide in the telecommunication giant's share price and mergers with major rivals failed to materialize. Chief Financial Officer Margherita Della Valle will fill in on an interim basis while the board, led by Chair Jean-Francois van Boxmeer, seeks a replacement. Vodafone's share price has fallen 44% since Read took over in October 2018. Read faced pressure from investors including Cevian Capital AB, which sold much of its stake earlier this year. More recently, a vehicle backed by French billionaire Xavier Niel bought 2.5% of Vodafone, saying it saw opportunities to accelerate deals and improve profits.
Argo Group International Holdings Ltd. (ARGO) has announced that Institutional Shareholder Services (ISS) and Glass Lewis & Co. have recommended that shareholders vote “FOR” all seven of Argo’s director nominees at the company’s upcoming Annual Meeting of Shareholders to be held on December 15, 2022. In addition, Voce Capital Management LLC, the owner of approximately 9.5% of the company’s common shares, has informed the company that it has voted all of its shares on the BLUE proxy card in support of the seven Argo nominees at the company’s upcoming 2022 annual meeting. In making its recommendations, ISS stated in its December 2, 2022 report: “The dissident has not made a compelling case for change. The highest priority for ARGO is the ongoing strategic review. There is no reason to believe that the process is not being conducted to advance the best interests of shareholders, and there is no indication that a key competency or perspective is absent from the strategic review committee.” Further, “the addition of Dan Plants in early August only bolstered the board's credibility, particularly because he was appointed to chair the strategic review committee.” In making its recommendations, Glass Lewis stated in its December 2, 2022 report: “Overall, we recognize that steps taken by the incumbent board and management have significantly transformed Argo into a focused U.S. specialty commercial insurance business and the resulting company appears stronger, more efficient, and better positioned to generate value for shareholders than the legacy structure, in our view.” Further, “Shareholders should note that Capital Returns has not offered alternative suggestions to improve the business beyond pursuing a sale of the whole Company. Given that the board is already considering a sale and has solicited a large range of potential counterparties as part of the strategic review, we do not believe the Dissident Nominees would be clearly additive to the strategic review process or likely to improve the outcome for all shareholders, if appointed to the board.”
Rudolf Bohli, whose hedge fund, RBR Capital Advisors, took a stake of $106 million in Credit Suisse (CS) in 2017, argues that the Swiss bank's recent overall "barely scratches the surface" of what needs to be done to reverse its fortunes. Executives and shareholders disapproved of RBR's proposal for Credit Suisse to be broken up into three parts, prompting the hedge fund to unwind its stake in 2018. "A lot of value has been destroyed over the past five years," Bohli said. "For the investment bank, it is hard to see how they are going to pull out of this without additional costs. And this will mean further losses for shareholders." Under its latest plan, Credit Suisse will spin out its investment banking unit into a separate business called CS First Boston, create a "bad bank" for $35 billion in unwanted assets, and pull back from trading while focusing on wealth management. The plan, which will require around $4 billion in new stock, will result in 9,000 job losses over the next three years. Bohli said, "It is largely keeping the same organization and cutting a little bit. It is another half-baked restructuring plan. They could have spun out the Swiss retail bank, and need to bring down headcount a lot further."
A shareholder is urging Home REIT Plc to replace its leadership team following a short seller attack in November. The Boatman Capital Research published an open letter addressed to Home REIT director Simon Moore calling for the resignation of the U.K. social housing landlord's board. Boatman cited issues including claims that the landlord failed to conduct suitable due diligence on some of its tenants and make appropriate disclosures, as well as inflated the value of its property portfolio. Home REIT held back publication of its earnings and its shares have dropped more than 30% since a Viceroy Research report last month sharing concerns about the financial health and governance of some of the landlord's key tenants. The short seller also rebuked Home REIT's accounting practices and the fee structure of its outside management team. Home REIT called the report baseless and misleading. The Boatman Capital said Home REIT's rebuttal to that report exposed “substantive areas” where the landlord had been withholding in its disclosure, and a change in leadership was necessary. The shareholder said it is not affiliated with Viceroy, but that entities related to Boatman own shares in Home REIT and it may consider making a bigger investment. Boatman would also consider engaging with other investors to force change if it is not forthcoming. Home REIT claims it intends to mitigate homelessness in Britain while also producing inflation-protected income and capital returns. Its modus operandi is to purchase property which is then rented out on leases of more than two decades to charities and other organizations.
HMI Capital Management, the leading shareholder in Coupa Software Inc. (COUP), said the company should fetch at least $95 per share in a sale after getting interest from at least one possible purchaser. HMI Capital owns a 4.8% stake in Coupa. HMI Capital stated in a letter to Coupa's board on Monday that the company is an excellent business with a great management team. HMI Capital said it would not back any transaction unless it was at the right price and came after a proper sales process. The shareholder said it may be a difficult time to realize the full value of the business in the current market. “Timing is everything when it comes to successful M&A, and the standalone option simply may make more sense right now than a transaction, and certainly makes more sense than a deal at the wrong price,” said RK Mahendran, HMI Capital partner, in the letter seen by Bloomberg News. Vista Equity Partners is weighing a potential acquisition of Coupa, sources said last month. HMI Capital, which noted it has never written a public letter to a company before, argues that Coupa is undervalued and says it would spurn any offer that failed to capture the potential upside. Shares in the company closed at $64.67 in New York Friday, giving it a market value of $4.9 billion. “Our worry is that now is a difficult time to realize the full value of Coupa’s long-term potential as a market-leader, given that Coupa’s share price is currently trading at a significantly depressed level and there are near-term sector-wide challenges in the software industry,” Mahendran said. Coupa’s shares are down approximately 63% from a year ago amid a wider selloff in the technology sector. HMI Capital said that, based on other deals in the sector, Coupa should yield more than $95 per share in a sale. Last week, another Coupa shareholder, Meritage Group, said in a regulatory filing it had conveyed its own views on what it thought would be a fair price for the company without disclosing additional details. “The future for Coupa is an exciting one, and any sale price or process that fails to appropriately value Coupa’s long-term potential at the expense of seeking to rush into a deal would not be tolerated by HMI,” Mahendran said.
Singapore-based hedge fund 3D Investment Partners scored a win in its proxy fight with Fuji Soft Inc. by gaining board seats for two of its candidates. This is the latest incident to raise doubts about the independence of outside board members from Japanese corporate management following expansion of independent directors after nearly 10 years of governance reform. Governance experts say outside directors only have nominal independence if they are closely associated with management or do not provide proper oversight. 3D, which controls more than 20% of Fuji Soft, nominated four additional candidates for the company's nine-member board at Sunday's extraordinary general meeting (EGM), citing current outside directors' inability to resolve longstanding capital allocation deficiency. Fuji came to the defense of its current board, telling Reuters that the independence of its outside directors "has been ensured with no conflict of interests with shareholders. They have given objective opinions and have contributed to fostering active debate." 3D also pursued an EGM at Toshiba Corp. (TOSYY) this year to renew the push for a strategic review to consider going private and other options. Meanwhile, Oasis Management of Hong Kong requested an EGM from Fujitec Co. Ltd. (FJTCY) to oust all six incumbent outside directors and appoint seven nominees backed by the fund. According to the Tokyo Stock Exchange, 92% of the approximately 1,800 firms on its prime section classify at least 33% of their directors as independent, although measuring their independence from management beyond a set of written criteria is difficult. Governance experts say having a committee to nominate directors would help guarantee independence, yet just 3.9% of top-tier companies have a statutory nomination committee, where most of its members must be outside directors. The practice of senior government officials obtaining post-retirement private-sector positions has also been criticized as a corrupting element in Japanese bureaucracy.
Shareholders of Grove Collaborative (GROV) and 23andMe (ME) plan to pressure the companies at their annual meetings next year for rewarding executives without asking the shareholders for approval. The special purpose acquisition companies (SPACs) promoted by British billionaire Richard Branson used an "evergreen" provision, which allows businesses to issue new shares year after year without consulting shareholders. Institutional investors don't like the provisions because they can dilute holdings without them having a say. Evergreen provisions increased as blank check companies exploded, and some large asset managers already have pushed back against the pay practice. BlackRock (BLK) and Vanguard this year voted against a move by SoFi (SOFI), a fintech SPAC set up by Chamath Palihapitiya, to change its evergreen provision to issue more shares. They also opposed Veeva Systems (VEEV) this year due to its evergreen provision. At least 167 SPACs since 2021 have gone public with evergreen provisions, according to data from ISS Corporate Solutions.
Ken Squire, founder and president of 13D Monitor, writes that Trian Fund Management could face an uphill battle in its efforts to engage Walt Disney (DIS). According to recent reports Trian took an approximately $800 million stake in Disney and may be interested in growing this stake. Trian is reportedly seeking a board seat, advocating for the company to make operational improvements and reduce costs, and it has expressed its opposition to Robert Iger’s reappointment as CEO. The calls for changes at Disney are very similar to what Dan Loeb and Third Point were advocating for at Disney earlier this year. On Sept. 30, Disney reached a deal with Third Point, including adding former Meta executive Carolyn Everson to its board of directors. On Nov. 11, Disney announced companywide cost-cutting measures and told division leaders that layoffs are likely. "So, a lot of what Trian is looking for – board change (particularly with former CEO Bob Chapek now off the board) and cost reduction – has either already happened or is in the process of happening," says Squire. Another thing about Trian, says Squire, is that it’s a very thoughtful investor, known for its detailed, comprehensive white papers. "The firm did not go into this without a plan and that plan was far from spontaneous or reactive. It was a plan that Trian has likely developed over many months. And it was presumably thrown for a loop when Disney announced that it replaced Chapek with former CEO, Bob Iger," writes Squire. "The fact that Trian had not yet built its full position when its holding was reported is more evidence that the firm felt it had to go public about its investment earlier than it wanted to in reaction to Disney’s announcement." Iger was an extremely respected and value-adding CEO at Disney for many years and the stock has reacted favorably to news of his return. So, it is interesting that Trian is reportedly opposing Iger’s appointment. Nor is the firm throwing its support behind outgoing CEO Bob Chapek. "Knowing Trian and knowing activists as we do, this could mean only one thing: Trian’s plan includes its own idea for a new CEO, something that would have been a lot easier to implement last week before Chapek was replaced by Iger," says Squire. "This is going to be an uphill battle for Trian. Disney recently reached a deal with activist investor Third Point and is not likely to settle with another activist for a board seat, particularly in light of all of the changes it has already made. Moreover, Trian would likely want Nelson Peltz or Ed Garden to be the firm’s representative on the board and Nelson is already on three public company boards and Ed is on two. Disney is definitely in need of serious change, but in the past three months the company has announced a cost-cutting plan, refreshed the board, and changed its CEO. It is not unreasonable to see if these initiatives work before considering additional changes. If Disney does not offer a seat to Trian, the firm would have to resort to a proxy fight to gain a seat, which it is unlikely to win on a platform of more change and opposing Bob Iger as CEO." More will soon be revealed, as Trian has until Dec. 9 to nominate directors for the 2023 annual meeting of shareholders.
Investors with $8 trillion of assets under management and advice this week called on the world's biggest chemical producers to commit to phasing out persistent chemicals that pose a long-term threat to environmental and human health. A group of 47 asset managers have written to the CEOs of the world's largest chemicals producers to warn that growing awareness of the dangers posed by "forever chemicals" means they now present a significant legal risk, following an increasing number of lawsuits against firms and a tightening of legislation around the world. "We encourage you to lead, not be led, by phasing out and substituting these chemicals," the letter states. "In addition to the financial risks associated with litigation, producers of persistent chemicals face the risk of increased costs associated with reformulating products and modifying processes, which can have significant implications for company performance." The letter was co-ordinated by Aviva Investors and Storebrand Asset Management, and is backed by a host of leading asset managers including Axa Investment Managers, Credit Suisse Asset Management (Switzerland) AG, Resona Asset Management, and Robeco. Eugenie Mathieu, earth pillar lead at Aviva Investors, said chemical manufacturers were "lagging behind expectations when it comes to transparency and accountability. Investors are rightly pushing for better disclosure on the volume of substances being produced globally, which can inform better investment decisions and identify the corporations leading the transition towards a more sustainable and responsible future."
Spain and the board of Indra Sistemas SA (ISMAY) are weighing possibilities for the company after Amber Capital LP called for it to be broken up, sources said. Board members have discussed options for Indra’s future since the hedge fund said Nov. 22 that the state-controlled company should be divided in two by separating its defense activities from information technology, the sources said. But the board hasn’t had any formal deliberations on a break-up, they noted. Any sale of the technology division could be politically sensitive because of the thousands of jobs at stake, some of the sources said. However, while the effect on jobs is a worry, it’s unlikely to be a deal-breaker if a decision is made to split up the company or sell the unit, they said. Spain owns 25% of Indra, according to regulatory data, and has said it wants to reach 28%; Amber owns 5%. The board is unlikely to make a decision prior to the government signalling its preference, one of the sources said. Half of the board comprises independents, the majority of whom were appointed in late October. Potential investors have already shown informal interest in the technology unit, a source said. Amber Chief Executive Officer Joseph Oughourlian said that each of the two spun-off units could potentially be worth as much as the current €1.8 billion ($1.9 billion) market value of the entire company, and urged a split-up, or for the technology unit to be sold or combined with another firm. Indra’s defense division is the more profitable of the two units, and is broadly thought to have robust growth prospects — particularly if Spain delivers on its recent pledge to boost military spending. The technology unit, known as Minsait, accounts for most of revenue, offering consulting services in a range of sectors and providing voting systems. The two divisions were carved out within the company under previous Executive Chairman Fernando Abril-Martorell, who was replaced in 2021 by Marc Murtra, who serves as a non-executive chairman. Murtra, a government nominee, has indicated in the past that he’s not opposed to splitting the company up.
The Australian Securities and Investments Commission (ASIC) has fined the Australian arm of Vanguard for overstating the extent of an exclusion of tobacco-related companies from one of its suites of managed funds. Vanguard Australia has paid A$39,960 in penalties after ASIC issued an infringement notice warning that one of its disclosure documents "may have been liable to mislead the public." It is the second asset manager targeted by ASIC in its crackdown on greenwashing, after it fined Tlou Energy A$53,280 in October for making "factually incorrect" statements about the carbon footprint of its electricity and gas projects.
Republican Sen. Tom Cotton (Ark.) has proposed legislation to overturn the U.S. Department of Labor's new rule permitting retirement plan fiduciaries to factor climate change and other environmental, social, and governance (ESG) issues into selecting investments and exercising shareholder rights. The joint resolution states that Congress "disapproves" of the rule, "and such rule shall have no force or effect." Cotton declared, "Retirement plans should prioritize investments with the highest return, not ESG scams." The resolution will not have traction in a Democrat-controlled Senate, but further reflects Republicans' resentment of the Department of Labor's Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights rule. The rule, which was finalized on Nov. 22, reverses two Trump-era rules. The rules barred retirement plan fiduciaries from investing in "non-pecuniary" vehicles that sacrifice investment returns or assume risk, and outlined a process a fiduciary must follow when making decisions on casting a proxy vote. DOL's Employee Benefits Security Administration "believes a final rule is necessary to reverse the 2020 rule's chilling effect on the integration of ESG factors into the investment selection and asset management process," said Lisa M. Gomez, assistant secretary for employee benefits security. The new ESG rule will be enacted on Jan. 30.
Continental General Insurance Co. has filed a 13D form with the U.S. Securities and Exchange Commission disclosing ownership of 1,379,088 shares of Tennessee-based mining company Alpha Metallurgical Resources Inc. (AMR), or an 8.6% stake. Continental said in its filing that after discussions with the company's board, Alpha named Continental Executive Chairman Michael Gorzinsky and Joanna Baker de Neufville as directors. Gorzynski is a veteran of Third Point. De Neufville is a principal of De Neufville and Company, L.P., where she oversees the firm's investment portfolio. Separately, Hudson Bay Capital recently boosted its stake in Alpha and now owns 4.08% of the company.
Investors are starting to voice their anger over the wave of ESG fund downgrades by asset managers and investment firms. Europe's main retail investor organization plans to meet with regulators and legislators to address concerns about member exposure to greenwashing. European authorities have failed to produce a regulatory framework that retail investors can understand, says Guillaume Prache, managing director of Better Finance. Asset managers are blaming unclear rules for the chaos. Fresh guidance from the European Commission on how to interpret its regulations has triggered ESG fund downgrades, including at the asset management units of Deutsche Bank (DB) and BNP Paribas (BNPQY) and investment firms like BlackRock (BLK), Pacific Investment Management, and Amundi (AMUN). European pension managers are also voicing concerns. Hundreds of funds may need to be downgraded due to the 100% sustainable investment requirement for Article 9 funds, according to Morningstar.
Senior Canadian public companies will need to have at least one racially diverse director, according to new benchmark voting policies adopted by Institutional Shareholder Services Inc. (ISS) for the 2023 proxy season. The policies will apply to companies holding their annual meetings after Feb. 1, 2023. However, its key alteration of its voting policies in Canada will include a one-year grace period, taking effect in the 2024 proxy season. “This reflects broadened Canadian disclosure requirements in this area and increasing investor expectations of board diversity,” ISS said in a press release. Further, for 2023, ISS is extending its board accountability policy to all high carbon-emitting companies. Under that policy, it could recommend votes against boards that don’t make sufficient disclosure, or haven’t adopted emission reduction goals for their direct emissions. Its updated policies also address a variety of corporate governance issues — including the transparency of political contributions, board gender diversity, director compensation, and the continued use of virtual shareholder meetings.
Europe will see a wave of shareholder activism as the economy improves throughout 2023, according to the latest Activist Alert report from Alvarez & Marsal. A total of 144 companies are at risk of facing shareholder engagement in the next 18 months. The number of funds using activist strategies rose to 96 this year, up from 93 in 2021 and 89 in 2020. The new funds using activist strategies are primarily from Europe, especially the U.K., which marks a shift away from U.S. activist funds. Campaigns focused on environmental and social issues are expected to rise 22% and 14%, respectively, in 2022, compared with the previous year. The U.K. will remain the preferred market for shareholder activism, followed by Germany with 29 companies predicted to see engagement, and France with an unchanged prediction of 23 campaigns. Engagement is expected to rise by 25% for the energy sector, and shareholders also are expected to focus more on consumer companies.
Today's CEOs face the challenge of not only balancing the priorities of multiple stakeholders, but also addressing a broad array of environmental, social, and governance (ESG) issues. As they identify the areas on which their companies should focus, their north star should be where their firms can have the biggest positive impact, as emphasized in a new report by The Conference Board ESG Center. Specifically, the impact that companies can have on their own welfare, that of their stakeholders, society at large, and the natural environment. CEOs should consider three key areas where they can move the needle: the products and services they offer in the marketplace, how they operate their businesses and treat their employees in the workplace, and the actions they take through government relations, communications, and corporate citizenship in the public space. The report also notes that CEOs should work with their boards to ensure that ESG is appropriately integrated into their companies' strategies and goals. And as they turn to implementation, integral to success will be having their C-suites aligned—a significant task in and of itself, and one that the CEO is best positioned to lead. The Conference Board produced the study with the support of KPMG, Morrow Sodali, and Weil, Gotshal & Manges. It is based largely on their recent roundtable exclusive to CEOs. Running through all the report's insights is the centrality of the CEO in driving ESG. "While CEOs may initially find it useful to develop a 'sustainability strategy,' the goal should be to incorporate ESG into planning to such an extent that the company has a 'sustainable strategy,'" said Paul Washington, co-author of the report and Executive Director of The Conference Board ESG Center. Among other things, the board should be fluent on key topics. CEOs can help to achieve this by educating the board on ESG issues that tie to the firm's main risks and opportunities; organizing an annual enterprise risk meeting for the full board, at which senior risk executives provide updates on the latest regulatory developments and expectations, mission-critical tasks, industry trends, and broader ESG lessons learned; encouraging directors to seek outside education on ESG, for example, by providing information about external governance programs and seminars; and having a transparent conversation with the board about the ESG issues where the company is in compliance or cost-saving mode, and where it is taking an industry leadership role.
Cracker Barrel Old Country Store (CBRL) investor Sardar Biglari has been a longstanding thorn in the company's side, but his aggression has ceased for the moment following a truce and standstill contract that saw an 11th board seat established in September for Biglari Holdings' (BH) nominee Jody Bilney. Cracker Barrel on Friday issued fiscal first-quarter results. The company's earnings per share decreased by 45% year over year while guidance for revenue growth for the rest of the fiscal year stood at at 6% to 8% and was less than expected commodity inflation. Previous criticism by Biglari appears unfounded. Since his lobbying gave Biglari Holdings management of Steak 'n Shake in 2008, Cracker Barrel's shares have generated more than 20 times its return and about double the S&P 500's. But the pandemic has been trying for the company, which has been trailing casual dining competitors like Darden Restaurants (DRI), Bloomin' Brands (BLMN), Dine Brands Global (DIN), and Brinker International (EAT) since February 2020. Biglari might be in a position to exploit Cracker Barrel's underperformance and weariness after five proxy fights he has led. Nevertheless, Cracker Barrel's return on invested capital exceeded 20% in the four years before the pandemic, which its large competitors were unable to replicate. Biglari Holdings itself only topped that mark once, nine years ago. Cracker Barrel's modernization attempts have not panned out, but a lessening of economic stresses should allow the company to again thrive using its tried-and-true playbook. Channels for growth are limited with little store expansion, but a dividend yield of 5% shows the company is capable at managing capital.
The Greek mythology story of Procrustes applies to all cases when someone or something is forced to arbitrarily fit into an unnatural pattern, and cannot be more fitting than what is happening to corporate governance, George Athanassakos and Lawrence A. Cunningham write in an opinion piece. Gold standards and best practices are everywhere in governance these days, but formulaic approaches can be perilous in practice for particular companies. What is critical is nuance that formulas can't capture, such as director wisdom, board chemistry, capital allocation sophistication, and mastery of a company's culture. Recent research from the University of Pennsylvania makes clear that generalities in corporate governance are suspect. The issue should always be what is best for a particular company and its shareholders, not what index funds, proxy advisors, or policy entrepreneurs declare is best.
Despite pushback from leading Republicans, a survey of 550 Bloomberg Terminal users found that more than 60% expect environmental, social, and governance (ESG) issues to be a standard part of, or increasingly critical to, running a business. By comparison, roughly a third of the respondents think the strategy that takes into account ESG issues — and impacts roughly $40 trillion of assets — is just a “fad.” Three-fifths think it will become standard or even more important. European respondents were most optimistic about ESG's importance, followed by those surveyed in Asia, with the Americas trailing at roughly 50%. More than half of respondents to the survey of Bloomberg Terminal readers said they were taking action on ESG because it's crucial to boosting corporate profits. Some 62% of respondents said they were acting on ESG at the behest of their clients, while about three-fifths said they were doing so primarily to protect their companies' reputations.
The growing importance of ESG to investors has many companies contemplating ratings improvement strategies leading up to proxy season, according to Cooley. Before taking steps to improve any ESG rating, companies should engage with investors and other stakeholders to determine whether this particular rating is meaningful to them. To determine which ESG ratings apply to a company, Cooley generally recommends reviewing ISS and Glass Lewis proxy reports to determine which ESG ratings are included therein, engaging with investors to determine which ESG ratings they use that apply to the company, and reaching out to the ratings providers themselves. An ESG ratings improvement strategy should account for the fact that ESG ratings target a variety of investor audiences. Before investing in ESG ratings improvement efforts, companies should assess their overall ESG goals and consider which ratings are most relevant to actualizing those goals. An effective ratings optimization strategy also requires understanding the significant variation in the subject matter ESG ratings are aiming to measure. Adopting a generic “market best practices” ESG approach is generally an inefficient strategy for ratings improvement. Understanding the data sources and the assumptions underlying ESG ratings should play an important role in establishing an ESG ratings improvement strategy, Cooley adds.
Shareholder engagement preparedness and defense is among the key trends and developments that boards should bear in mind in the coming year, according to Wachtell, Lipton, Rosen & Katz. Engagement activity has rebounded and investors continue to leverage ESG topics as wedge issues. Engine No. 1, Carl Icahn, and Third Point used ESG topics to rally support of institutional investors around economic and governance theses at Exxon (XOM), McDonald's (MCD), and Royal Dutch Shell (SHEL), respectively. Meanwhile, the new U.S. Securities and Exchange Commission rule on universal proxy cards will facilitate proxy contests. Another development that may impact voting dynamics is the initiative by large asset managers like BlackRock (BLK) to provide retail clients with the ability to directly participate in voting decisions. Other notable trends and developments include climate disclosure, board diversity, and politicization of ESG. Consideration of ESG factors is consistent with the board's fiduciary duty of care, as well as the board's Caremark obligations to identify and address material risks.
Ben Maiden, editor of IR Magazine, investigates how corporate values on issues such as executive compensation are set to feature prominently in 2023. Large U.S. companies continue to face pressure to take public positions on a range of political and social issues such as racial equity. Some of those that have done so may think twice about doing so again after feeling the pushback from lawmakers and others. But investors and shareholder advocacy groups won't face such impediments in the coming proxy season and are expected to push companies on their values, says Maiden. A reason companies may find themselves in the crosshairs on values-based issues is the recent spike in anti-environmental, social, and governance (ESG) shareholder proposals in the social and environmental spaces. Research from Georgeson finds twice as many proposal submissions that were critical of the ESG landscape in 2022 (52) as in 2021 (26). In many cases, these anti-ESG proposals appear at face value to be similar to pro-ESG resolutions, but their supporting statements reveal very different intents. Those conservative proposals didn't gain much traction — according to Georgeson they secured an average support of 9.5% but observers expect them to continue to appear in 2023. As a result, governance professionals say it is time for companies to identify more proponents in their proxy statements so investors can better understand their perspectives. Companies need to educate themselves and shareholders about people submitting proposals, says June Hu, an attorney with Sullivan & Cromwell, noting that more proposals are being filed by individuals on behalf of groups. She says that faced with proposals on a sensitive topic, companies should consider what's right for their constituents, not just shareholders. She also notes that companies have for some time been willing to negotiate with proponents to potentially withdraw their resolutions, particularly on sensitive social matters, but proponents are less willing to settle following a change at the U.S. Securities and Exchange Commission (SEC). The agency's division of corporation finance in fall 2021 updated guidance on its process for deciding whether to give no-action relief under Rule 14a-8 for companies that wish to exclude a proposal from their proxy statements. This was seen as making it less likely that the SEC would grant such relief and as a result mean that a larger number and array of ESG proposals would get onto proxy statements — something that is generally accepted as having come true, says Maiden. "The shift is also generally seen as allowing proponents to get more granular and more prescriptive resolutions to votes at AGMs that in turn can face more opposition from investors."
After Bob Iger returned to Disney (DIS) as CEO, the company said he must not only "set the strategic direction for renewed growth" at the company but also "work closely with the board in developing a successor to lead the company at the completion of his term." Possible successors include Jimmy Pitaro, chairman of ESPN and Sports Content, who has been at Disney since 2010. However, ESPN is losing cable subscribers, which led to a push by investor Dan Loeb for the company to spin off the sports network; Loeb later changed his mind.
Seventy-nine percent of directors in Ireland do not integrate ESG metrics into the compensation of their executive directors, according to a new report by Diligent, a provider of SaaS solutions. Despite this, 52% believe that compensation for executive directors should be linked to ESG-related metrics. ESG has become increasingly important for Irish boards, with 58% indicating that oversight sits at the board level — an increase from 46% in 2021. Twenty-three percent of Irish boards also say they discuss ESG at every meeting. However, despite ESG being a clear item on the boardroom agenda, 47% do not have key performance indicators in place to measure progress. Of the organizations that have implemented KPIs around ESG, the majority say it was challenging to implement these measures. Twenty-nine percent of respondents also say their organization includes ESG expertise when identifying new board members.
Investor relations officers (IROs) are facing an uncertain economic and geopolitical situation, writes IR Magazine columnist Alexandra Cain. "Suddenly, IROs are thinking less about the shift from virtual to live events for pandemic purposes, and more about budgets," she says. "Equally, many IR professionals undergoing their first real downturn are working out how to communicate with and give guidance to the market when there’s no real clarity on future performance." Cloud data-management business Informatica’s (INFA) vice president of IR, Victoria Hyde-Dunn, says that from her perspective, IR professionals are grappling with two major challenges. "Given the increasing probability of an economic recession in the U.S. in 2023 due to rising inflation and interest rates, it’s not a surprise that we are already seeing consensus estimates for sectors such as tech, consumer, and retail starting to be trimmed for 2023." Hyde-Dunn says if the economy is tipped into recession, many IROs are going to look to the past for lessons learned from the 2008 U.S. recession and how firms navigated best practices for messaging and reporting business metrics. This is especially true when it comes to guidance.
Over the past decade, investors, companies, and commentators have increasingly accepted and adopted stakeholder governance as the way to pursue the proper purpose of the corporation and have embraced consideration of environmental, social and governance (ESG) issues in corporate decision-making toward that end, writes Martin Lipton of Wachtell, Lipton, Rosen & Katz. "But an emerging movement opposed to any consideration, at all, of ESG factors threatens to erase the gains that have been made over the past ten years and revert to the outdated view that the purpose of a company is solely to maximize short-term shareholder profits." The objective of creating sustainable, long-term value recognizes that the purpose of forprofit corporations includes value creation for investors, but also recognizes that the interests of other constituents — namely employees, customers, suppliers, and communities — are inextricably linked to that very creation of long-term value, says Lipton. "Vindicating this concept of corporate purpose necessarily requires consideration of ESG principles — failure to do so would undermine the long-term value and success of the enterprise." In carrying out decision-making, Lipton says, "corporate law imposes on boards a fiduciary duty of care to act on a reasonably informed basis after due consideration of relevant information and appropriate deliberation. This means that directors must take actions necessary to assure themselves that they have the information required to take, or refrain from taking, action; that they devote sufficient time to the consideration of such information; and that they obtain, where helpful, advice from appropriate experts. As we set out here, there should be no doubt: Longterm value maximization as the corporation's purpose and objective is entirely consistent with the board's fiduciary duty." Lipton continues, "By ignoring or not taking into account the interests of stakeholders and ESG considerations, a corporation will not be able to sustain itself over the long term. Considering the interests of not only shareholders, but also all who are critical to the success of the company, is essential to ensuring long-term sustainability, and is consistent with the board's fiduciary obligation to inform itself of and consider all relevant information." In recent months, Lipton writes, "the concept of ESG has become fraught with political and legal implications as actors and lawmakers on both sides of the political spectrum and at all levels of government have seized on ESG and attempted to conflate it with progressive or liberal values. Asset managers are commonly the target of anti-ESG attacks, as are companies, boards, and executives. These attacks and attempts to besmirch the ESG rubric misunderstand that the concept of ESG is as simple as it is uncontroversial: ESG is merely a collection of the risks and issues that all companies must carefully consider and balance, taking into account their own specific circumstances, in seeking to achieve sustainable, long-term value. The politicization of ESG does not alter or undermine the ability of boards and companies to consider stakeholder and ESG risks and issues."
Quentin Koffey—who after stints at Elliott Management and DE Shaw now has his own hedge fund, Politan Capital Management—is seeking a board seat at Masimo Corp. (MASI), a California-based maker of pulse oximeters. Koffey seeking election to the Masimo board is itself nothing extraordinary, but the fight has captivated Wall Street for a particular reason, writes Sujeet Indap, Wall Street editor for the Financial Times. Masimo does not think it should be so straightforward for Koffey to stand for election. It is insisting that the investor disclose the specific identities of his largest fund backers. Masimo has even gone as far as speculating in legal filings that Koffey just may be a “Trojan horse” representing “sovereign entities that do not respect — and have attempted to steal — intellectual property belonging to U.S. companies." The Masimo board has been careful not to explicitly accuse Koffey of being a foreign agent or of having malign motives. Rather, they believe Masimo shareholders deserve to know who is behind Politan before allowing Koffey to seek a board seat. Koffey disagrees, saying Masimo's information requirements needed to stand for election are both irrelevant and legally impermissible. He is asking a Delaware court to invalidate the requirements. The Politan/Masimo fight has erupted at a crucial moment in activist investing, says Indap. The U.S. Securities and Exchange Commission has just rolled out a universal proxy card that makes it easier and cheaper for shareholders to run against company-backed directors. The worry for companies is that now marginal or unsavoury shareholders can seize upon the universal proxy to snatch board representation. Corporate lawyers are advising incumbent directors that they can impose some order on board elections through a mechanism known as advance notice provisions in company bylaws. Advance notice provisions tended to be mild. In some instances, however, information shared would go on to reveal that a director nominee had previously unknown ties that could be sinister. Masimo may now be overplaying its hand, says Indap. "The worry for companies and corporate lawyers not involved in this dispute is that Masimo's advance notice requirements will be judged to have gone too far and that the Delaware court may finally curtail advance notice provisions as a general matter." Besides disclosing the identities of Politan's investors, Masimo is demanding information on past and future Politan activist campaigns as well as details of investment holdings of these backers and even their household members with the theory that those details could show conflicts of interest. “The bylaws protect against a 'Trojan Horse' situation where a nominating stockholder and its director nominee are acting on behalf of — and potentially sharing confidential information with — undisclosed actors who do not have Masimo's best interests in mind,” Masimo wrote in its court filings. Indap says, "It may be that Koffey has bad ideas and bad intentions for Masimo, as the company's board worries. But the question really is why does the board get to cut off the debate on both Koffey's ideas for the company, as well as whatever shortcomings he brings, without permitting shareholders to decide those questions for themselves."
BlackRock (BLK) has come under fire from some investors, pension funds, and politicians over its stance on ESG matters. However, BlackRock's ESG investments, votes, and internal practices reveal that it may be straddling the fence. BlackRock voted in favor of climate change shareholder proposals fewer times than many of its rivals in the July 1, 2021, through June 30, 2022, proxy season, according to its latest data. Some of its ESG strategies can still invest in fossil fuel companies. Many asset owners similarly eschew divesting from fossil fuels and prefer to press for change from within. Still, BlackRock remains under scrutiny because of its public focus on ESG factors across the breadth of its investment strategies. BlackRock has defended its policies. Other asset owners have pushed back as well, saying as long-term investors, they cannot ignore data that is material to their investment performance.
Many asset owners are seeking more data to evaluate the risks and potential rewards of ESG investing, according to investment consultants. The move comes after high-profile political skirmishes over ESG investing. Some states have now moved to limit how state pension plans can invest in ESG funds. The Missouri State Employees' Retirement System recently pulled funds managed by BlackRock (BLK) over ESG investing, but other state pension funds, such as the Minnesota State Board of Investment, are moving forward on ESG information gathering and integration. In response to the increased demand for ESG education and information, some investment consultants are tracking ESG sentiment and interest. A recent survey by Callan reveals a decline in the number of institutional investors considering ESG. Industry experts say this likely reflects increased scrutiny from regulators and pushback over using ESG strategies.