Media Center

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

Land & Buildings Makes Case for Its Brookdale Board Nominee
Citigroup Dismisses Analysts Globally Amid Cuts to Trading Unit
AT&T Boss Met With Elliott to Discuss Strategy
Occidental Petroleum Recommends Lowering Threshold for Special Meetings
Saga Meets With Elliott as Boss Warns of 'Bloody' Travel Market
Japan Plans to Tighten Rules on Foreign Investment
Brookdale Senior Living Announces Annual Meeting Date, Prepares for Proxy Contest
Nelson Peltz Explains Trian's 'Big Mistake' on GE and Why He's Sticking by the Stock: 'Larry Culp Is a Star'
It Is Too Early to Break Us up Now, Says Chief of Troubled Saga
NYC Comptroller Reports 10,000% Rise in Proxy Access at Companies Since 2014
Nelson Peltz Lauds Relationship With P&G: 'We're Getting Along So Well'
Blue Harbour's Cliff Robbins: CEOs Will Eventually Tout Social Impact Score Alongside Bond Rating
AT&T Explores Parting Ways With DirecTV
AT&T, Dish Not in Talks Over DirecTV Deal
Elliott Pushes for Sale of Hilton Grand Vacations
City of London Stockbroker Cenkos Reshuffles Board
Primo Executives, Board Face Call for Major Shakeup From No. 2 Shareholder Group
SAP's German Users Demand More Help With Digital Shift
Sony Rejects Third Point's Proposal Calling for a Company Breakup
Blackstone Is Said to Be in Talks to Buy the Bellagio and MGM Grand
Investor Withdraws Name From Brookdale Board Consideration
Cerner Hires Its First Chief Marketing Officer
'No Tangible Benefits': N.Y. Judge Rejects Xerox Shareholder Class Action Deal
Elliott Said to Buy Stake in Agnellis' CNH Amid Spinoff Plan
Crystal Amber Fund Net Assets Held Back by Performance of De La Rue, Northgate
Wine No Longer Mixes With Cocktails
EssilorLuxottica Is Said to Face Call for Governance Change
Telecom Italia May Discuss Savings Shares' Conversion at Sept. 26 Board Meeting
SEC Staff's 14a-8 No-Action Announcement Sparks Questions and Concerns
Union Says AT&T Must Reject Elliott's Restructuring Plan
Hertz's Stock Rises After Icahn Discloses Stake Increased to Over 30%
Why LKQ Stock Just Jumped 10%
Carl Icahn Is Heading to Florida for Lower Tax Rates
A Plumbing Giant Is Breaking Up. Here's What That Means for U.S. Investors.
New Policy for Shareholder Proposal Rule
Directors' Duties in an Evolving Risk and Governance Landscape
Third Point's Phony Battle With Sony
Setting Directors' Pay Under Delaware Law
Video: What's Driving Demand for ESG Strategies?
Why Vietnam Has Become a Battleground for Corporate Governance Standards
All Companies in TSX Composite Now Have a Woman on Board
Video: Should Exclusionary Screening Be a Default Choice With ESG Strategies?
Video: How to Distinguish Between Effective ESG Info and Greenwashing
Video: How Is ESG Research Evolving to Provide Deeper, More Relevant Insights?
Video: Must ESG Investors Forgo Performance Objectives?
Video: Do Different Market Conditions Impact the Efficacy of ESG Data?
Trends in Executive Compensation
Elliott Management Is Calling for Big Changes at AT&T. CEO Randall Stephenson Says Some Make a 'Lot of Sense.'
Elliott Doesn't Trust AT&T's John Stankey as a Leader, But Getting Him Ousted Could Create Chaos
Video: Sony Snubs Loeb
Wall Street Investment Giants Voting Against Key Climate Resolutions
2019 Proxy Season Recap and 2020 Trends to Watch
SEC Guidance on Proxy Advisory Firms a Good First Step — But Stronger Rules Needed
Activists Bark Loudly With Smaller Bites
Climate Change Moves to Top of Investors' List of ESG Issues
Asset Owners Struggle With Divestment as ESG Tool
Ray-Ban Investors Should Look Beyond the Optics
Response to SEC Subcommittee Recommendations—Universal Ballot and Vote Confirmations
Jeff Bezos Becomes the First CEO to Break His Pledge to Dump the 'Shareholder Value' Model
Takedown by Elliott's Paul Singer of AT&T Is on the Money
SSGA Finds Resistance Amid Progress on Board Diversity
How Institutional Investors Are Turning the Gender Diversity Dial on Corporate Boards
AT&T Chief Laid Plans for His Exit. That Set Off a Shareholder Challenge.
AT&T Showdown Raises Question: How Much Fat Can Be Cut?
Activist Investors Could Unlock Value of BBBY Stock
Stakeholder Governance and the Freedom of Directors to Embrace Long-Term Value Creation
Research: When Women Are on Boards, Male CEOs Are Less Overconfident
New Research Shows the Career Path to CEO Is Different for Women
Five Reasons to Give Stakeholder Capitalism a Chance
Why Corporates Are Waking Up to Stakeholder Capitalism and Fairer Value Chains

9/20/2019

Citigroup Dismisses Analysts Globally Amid Cuts to Trading Unit

Bloomberg (09/20/19) Rudnitsky, Jake

Citigroup Inc. (C) has terminated numerous research analysts in recent weeks, according to sources, as plunging commissions and new rules put at risk jobs across the sector. The terminations come as ValueAct Capital Management, which owns a 1% stake in the bank, has become more involved in decision making, signing an agreement in January that permits the hedge fund to see confidential information about strategy, governance, and planning. Dalibor Vavruska, a London-based telecoms research managing director, was one of the longer-term employees who was let go, according to the sources. Frontier markets strategist Andrew Howell in New York and the bank's San Francisco-based chief Asian strategist also lost their jobs, the sources said. Ronald Smith and Barry Ehrlich, the last two equity analysts in the Moscow office; Heath Jansen, the Dubai-based head of metals and mining research; and a number of senior Latin American experts were let go as well, the sources said. The company is in the midst of terminating approximately 400 people from its trading division, which includes equities research and strategy. Research departments in the sector have been hit hard by a decade-long drop in equity trade commissions, which fell by almost 50% in 2018 from their peak in 2009, according to Greenwich Associates data. The sector has also struggled to adapt to MiFID II, European Union rules implemented in 2018 that require investors to pay separately for analysis, rather than bundling the cost of research together with trading commissions.

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9/19/2019

Nelson Peltz Explains Trian's 'Big Mistake' on GE and Why He's Sticking by the Stock: 'Larry Culp Is a Star'

CNBC (09/19/19) Sheetz, Michael

Trian Partners' Nelson Peltz spoke to CNBC's Jim Cramer on Sept. 19 about the backstory to his firm's position in General Electric (GE), explaining what the hedge fund's "big mistake" on the position was three years ago. "We bought the stock at $23 ... it went up to $32; we sold a third of our position," Peltz said at the Delivering Alpha conference. "That was our big mistake; we should have sold three thirds of our position," he said. GE's stock has declined more than 70% since then, and now trades near $9 a share. When Trian took a $2.5 billion stake in GE in 2015, the company's "disclosure was awful," Peltz said. GE's management at the time offered poor guidance, but in the past several years, the company has undergone multiple management changes. In 2017, in the midst of these changes, the firm won a seat on GE's board and installed Trian's Ed Garden to make changes. "We got rid of CEOs," Peltz noted, adding that "the board is, except for one person, 100% changed." In 2018 GE appointed CEO Larry Culp, whom Peltz regards very favorably. "I think Larry Culp is a star. I think he knows how to run a business. I think he knows how to deal with these issues," he said. "Larry was on the board roughly a year before he became CEO," Peltz noted. "So he was fully aware of the issues and then stepped in and took the job as CEO. Larry is fantastic. He's putting together a great management team. He's got a stupendous board."

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9/19/2019

Nelson Peltz Lauds Relationship With P&G: 'We're Getting Along So Well'

CNBC (09/19/19) Cox, Jeff

Trian Fund Management's Nelson Peltz and Procter & Gamble Chairman and CEO David Taylor, once adversaries over the direction Procter & Gamble (PG) should take, met Sept. 19 and discussed the company's revamp with CNBC's Jim Cramer at the Delivering Alpha conference presented by CNBC and Institutional Investor. Peltz and Taylor have worked together since the fight that resulted in Peltz winning a seat on P&G's board in March 2018. Shares have risen approximately 50% since then and have advanced about 32% this year. "David has been a gentleman throughout the whole thing we communicate a lot, even through the proxy fight," Peltz said. "I found that the most important ingredient a CEO needs to have is to be a good listener. Nobody has a monopoly on good ideas. We have an attitude at Trian, we steal any good idea and be proud of it. We'd rather be rich than right, and David has that same attitude. That's why we're getting along so well." Taylor said that the company has continued to concentrate on its turnaround strategy "that we felt was very strong" even through the fight with Peltz. "What we did throughout the process was listened," Taylor said. "I'm not taking credit for anything," Peltz said. "I found a great management team under David, one that I really have a lot of respect for, [a] board that once the fight was over they came together and have been so welcoming to me, and I mean that. I'm not just saying that."

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9/17/2019

Sony Rejects Third Point's Proposal Calling for a Company Breakup

Wall Street Journal (09/17/19) Mochizuki, Takashi

In a Sept. 17 letter to shareholders, Sony Corp. (SNE) turned down a request by investor Daniel Loeb to spin off its profitable camera-parts unit, saying that keeping the business in-house would preserve synergies. Loeb's hedge fund Third Point LLC had called for the spinoff in June, saying the parts of the company's business portfolio lacked an obvious connection to each other, pushing down the share price. Tuesday's letter, backed by a unanimous board vote, makes it clear that Sony intends to preserve the conglomerate model. Although it is common for Japanese companies to reject calls for a breakup, Sony went a step further than most by bringing in outside advisors to review the idea and rebutting Loeb's suggestions point-by-point. Sony argued that the unit is critical to serving creators of entertainment content, and that the sensing technology draws on its expertise in other areas. Sony also explained that the image sensors are unlike other semiconductors in that they don't require the same level of regular spending to upgrade equipment, while bringing in stable profits for the company. A spinoff, it said, would generate costs and divert management attention while depriving the unit of valuable talent synergies and brand-name security tied to being part of a conglomerate. Sony also rejected Third Point's suggestion that it sell its majority stake in a Japanese financial-services unit, although it did sell its stake in medical-equipment maker Olympus Corp. (OCPNY) in August, which Loeb had also sought.

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9/16/2019

Cerner Hires Its First Chief Marketing Officer

Kansas City Business Journal (09/16/19) Lieberman, Lily

Cerner Corp. (CERN) has hired its first chief marketing officer, and the company is now branding itself as a client-focused company after the announcement of a new operating model in February. Darrell Johnson will head global marketing, corporate communications, and market intelligence to "expand lines of revenue and help guide the organization through its next wave of growth," according to a press release issued Sept. 16. Johnson was a senior executive at medical device company Medtronic Inc. (MDT) before joining Cerner. He will work to help position Cerner as a software-as-a-service platform for health care that focuses on curating data to inform clinician experiences. Cerner CEO Brent Shafer's innovation strategy is underscored by recent moves to reduce operating expenses, among others. Understanding Cerner's decision-making calls for a deeper examination of Shafer's operating model and the goals of investor Starboard Value LP. As the company considers a variety of revenue-capture options, it intends to broaden its capabilities in artificial intelligence and analytics to manage patient risks and boost collaboration with third parties. Starboard Value backs this "disruptive innovation"—a phrase reflecting the company's new operating model—as long as it reaches its improved operating margin targets of 20% for the fourth quarter of 2019 and 22.5% for the fourth quarter of 2020.

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9/16/2019

'No Tangible Benefits': N.Y. Judge Rejects Xerox Shareholder Class Action Deal

Reuters (09/16/19) Frankel, Alison

Last week, New York Supreme Court Justice Barry Ostrager refused to approve a shareholder class action settlement with Xerox (XRX), holding that plaintiffs' lawyers had obtained nothing of value for shareholders. This marks the latest development in a complicated case dating back to April 2018, when Ostrager issued a preliminary injunction to block Xerox from allowing a shareholder vote on a proposed merger with Fuji (FUJIY), saying the deal was tainted by Xerox board members' conflicts. In a subsequent settlement and a proposed settlement with a class of shareholders, the company replaced four of its directors with new board members proposed by plaintiff Darwin Deason and fellow Xerox investor Carl Icahn. The appellate ruling led to a revised theory in a separate derivative suit from 2018, which now alleges that Xerox board members breached their duty by acquiescing to Deason and Icahn, allowing them to terminate the Fuji deal. The plaintiffs' lawyers argued that the proposed class action settlement would have allowed those directors to walk away, while class members would get nothing more than the company agreed to in its separate settlement with Deason. In the most recent ruling, Ostrager determined that the plaintiffs' lawyers had allowed Deason and Icahn, who owned 15% of Xerox shares, to seize control of the company without consideration for shareholders. Siding with shareholders in the derivative case, Ostrager found that approving the settlement would release Xerox directors from liability in approving and then abandoning the Fuji deal, benefiting board members but giving nothing to shareholders for releasing their claims.

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9/12/2019

SEC Staff's 14a-8 No-Action Announcement Sparks Questions and Concerns

Corporate Secretary (09/12/19) Maiden, Ben

On Sept. 6, the Securities and Exchange Commission (SEC) announced that it will revise its approach to handling companies' requests to exclude shareholder proposals from their annual general meetings (AGMs). Starting in the 2019-2020 proxy season, the SEC may respond orally instead of in writing to some no-action requests, clarifying that if staff declines to state a view on a request, interested parties should not take that to mean the proposal must be included. The announcement is concerning to both corporate attorneys and investors, who fear potential outcomes including a wave of niche shareholder proposals, a lack of clear guidance, and being forced into litigation to settle disputes. The statement is of note for the emphasis the division places on its option not to make a decision on excluding a proposal and, secondly, its plan to respond orally in some cases. If a company is determined to exclude a proposal and the division doesn't state a view, the only solution for a shareholder proponent is to go to court, an environment that favors companies with large teams of lawyers. A Davis Polk memo notes that although the SEC reiterates its view that a board analysis can be useful, "given the limited basis on which this argument has succeeded during the past two seasons, companies may be discouraged from engaging their boards for this purpose." The Council of Institutional Investors has weighed in, arguing that an SEC "pull-back" could damage the shareholder proposal process in the long term, because some risk-averse companies may include trivial proposals and freeze out meritorious proposals.

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9/20/2019

A Plumbing Giant Is Breaking Up. Here's What That Means for U.S. Investors.

Barron's (09/20/19) Steiner, Rupert

Ferguson has been undervalued because of lackluster performance at its British operation, but Trian Partners has built a 6% stake, and Ferguson announced earlier this month that it will split its businesses and focus on its more profitable U.S. firm, from which it derives 90% of its sales. The U.S. business will retain the Ferguson name, while the U.K. business will be called Wolseley. Both will be listed on the London stock exchange, but a review is under way over whether to change the listing to the United States. Keith Hughes, an analyst at SunTrust Robinson Humphrey, says a U.S. relisting would foster more analyst coverage. "We think Ferguson is a name primed for a revaluation, as its financial merits become more recognized by investors," he stated in a July note on Ferguson's American depositary receipt (FERGY.US). Hughes has a target ADR price of $10 a share—a more-than 30% premium to its recent $7.53 close. The company is one of the largest distributors of plumbing and heating products in the United States, and has a market value of £14 billion ($17.5 billion). The U.K. operation has struggled because of a slowdown in the housing market, overcapacity, and Brexit uncertainty. Separating the two businesses makes sense and could result in a revaluation. The U.S. business would be valued at 10 times enterprise value/2020 estimated earnings before interest, tax, depreciation, and amortization, according to Hughes. Trian could encourage Ferguson to use more financial leverage to make acquisitions, which would boost its value.

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9/19/2019

New Policy for Shareholder Proposal Rule

Harvard Law School Forum on Corporate Governance and Financial Regulation (09/19/19) Hall, Joseph; Huber, Betty; Chiu, Ning

The Securities and Exchange Commission (SEC) recently announced a new policy regarding its administration of Rule 14a-8 under the Securities Exchange Act of 1934, also known as the shareholder-proposal rule. As before, the staff will review any no-action letter request that a company might submit when seeking to exclude a shareholder proposal. Under the new policy, the staff may decline to state a view with respect to the company's reason for excluding the proposal. If this happens, the interested parties should not interpret that position as indicating that the proposal should or should not be included in the proxy statement for a shareholder vote. Under those circumstances, the company may have a valid legal basis on which to exclude the proposal, and parties may choose to seek adjudication of the issue in court. Going forward, this policy creates uncertainty. Some companies may be hesitant to exclude the proposal if the staff declines to comment, waiting for clarity around whether negative consequences will result from proxy advisory firms or other shareholders. While the new policy suggests that litigation is an alternative, the cost and timing thereof would be deterrents. The announcement may have been motivated by concerns that SEC leaders have identified regarding limitations on the applicability of staff views. Earlier this year, Commissioner Peirce analogized staff guidance as a "body of secret law" that binds market participants but is immune to review. The Rule 14a-8 review process has sometimes been identified as an example of quasi-legislative rulemaking at the staff level. Whatever the impetus, both investors and companies have raised concerns about the change, as the staff has long played an active role as the arbiter of shareholder proposals. At minimum, the analysis of shareholder proposals may be more difficult for all parties this season.

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9/19/2019

Directors' Duties in an Evolving Risk and Governance Landscape

Harvard Law School Forum on Corporate Governance and Financial Regulation (09/19/19) Lipton, Martin; Savitt, William

Corporations account for an unprecedented proportion of our collective productivity today, and as such, calls for the exercise of corporate social responsibility have become more urgent. U.S. corporations seeking to answer these calls remain subject to countervailing market pressures to deliver excessive stockholder returns in compressed time horizons. Putting forth an alternate model termed The New Paradigm, this article questions the historical, doctrinal, and empirical underpinnings of the shareholder-value maximization principal, which can easily justify the pursuit of a short-term rise in stock price at the expense of long-term corporate value. The environmental, social, and governance (ESG) investing movement provides a useful starting point for mitigating unfamiliar risks in a developing governance context. Corporate boards are obligated to identify and address ESG risks as part of their essential fiduciary duty to protect the long-term value of the corporation itself. Moreover, the costs and dislocations caused by climate change and environmental degradation create liability risk across the economy. To meet these challenges, directors can use their reasoned business judgement to balance the interests of all corporate stakeholders. The controlling legal rule is that the business judgement rule will support board action pursuing ESG principles for the purpose of creating long-term corporate value. Furthermore, boards have the affirmative obligation to identify risks and articulate the strategy and time horizon for mitigating them, meaning that their duties actually require boards to address the full range of risks threatening their corporation's ability to deliver sustainable growth.

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9/18/2019

All Companies in TSX Composite Now Have a Woman on Board

Globe and Mail (09/18/19) Milstead, David

In its 2019 proxy season review, shareholder advisory firm Kingsdale Advisors noted that in 2019, every one of the 240 companies in the S&P/TSX Composite Index held their annual election of directors with at least one female candidate. This is significant progress, as 44% of the composite's companies had an all-male board in 2012; 10% had all-male boards in 2017; and 3% has all-male boards last year. Gender-diversity advocates note that the recent achievement is only the beginning of many necessary changes. The annual Spencer Stuart analysis of Canada's 100 largest companies found that just 30% of appointments of new directors in 2018 were women, compared to 40% or more every year from 2014 to 2017. The proportion of all corporate directors in the study group that are women stayed at 27% in 2018 after increasing for several years. In its most recent review of gender diversity of the boards of Canadian public companies, the Canadian Securities Administrators found that the number of public companies with at least one woman on their board increased from 49% in 2015 to 66% in 2018. The Kingsdale report also notes that 25 public proxy contests were launched in Canada this year, compared to 29 this time last year. It notes that 16 of the 25 activists in 2019 were first-timers, while firms that would be considered traditional activist funds launched only four of the campaigns.

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9/17/2019

Wall Street Investment Giants Voting Against Key Climate Resolutions

The Guardian (09/17/19) Helmore, Edward

BlackRock Inc. (BLK) and Vanguard have voted overwhelmingly against the critical climate resolutions at energy companies, including ExxonMobil (XOM) and Duke Energy (DUK), according to a report by the Washington, D.C.-based Majority Action and the Climate Majority Project. Had the two asset management companies not scuttled these investor efforts, at least 16 climate-critical shareholder resolutions at S&P 500 companies would have received majority support in 2019, representing a major corporate shift on climate, the report alleges. Not using their proxy votes to back shareholders' resolutions means letting companies ditch responsibility—even as the climate crisis threatens their investors, their business models, and the globe, the group claims. "The climate crisis is well upon us, and leading investors are stepping up to press fossil-fuel-dependent companies to align their strategies to the goals of the Paris agreement but some of the largest U.S. investment companies are severely lagging," says Majority Action's Eli Kasargod-Staub. "Blackrock and Vanguard have been using their shareholder voting power to undermine, rather than support, investor action on climate, including opposing every one of the resolutions proposed by the $34 trillion Climate Action 100+ coalition, calling for significant board room reform in response to its failure to act on climate change," Kasargod-Staub says. In April, Blackrock published a report on climate-related risk and said, "Climate change is a risk investors can't ignore." Meanwhile, Vanguard issues an annual "investment stewardship" report delineating its commitment to sustainable investing. Although Blackrock and Vanguard may not be using their proxy power to foster change, there is evidence that some of their funds are moving toward investing under environmental, social, and governance protocols. Blackrock has premiered a variety of sustainable equity exchange-traded funds, and it offers clients direction to build portfolios focused on companies that are likely to offer returns on clean-energy investments. The total value of funds that have integrated ESG factors into their investment process has more than quadrupled since 2014, increasing to $485 billion as of April, according to data provider EPFR Global. Blackrock says that its environmental stewardship team engaged 250 companies last year regarding climate change and that singling out the use of proxy votes is misleading because it ignores the totality of the firm's engagement on the matter.

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9/17/2019

2019 Proxy Season Recap and 2020 Trends to Watch

Harvard Law School Forum on Corporate Governance and Financial Regulation (09/17/19) Park, Lyndon

The average support for say-on-pay initiatives among Russell 3000 companies during the 2019 proxy season held steady at around 90% (slightly lower than 2018), as well as the percentage of companies failing say on pay (about 2%), according to IRC. At Russell 3000 shareholder meetings held in the first half of 2019, 45 directors failed to receive majority support from shareholders in uncontested elections (vs. 36 such directors in the entire year of 2018). Shareholder proposals related to corporate governance comprised most of the proposals that reached a vote (64.4% in 2019) and represented the majority of proposals that passed at companies. Some 21% of governance proposals passed in 2019 vs. 13% in 2018. More environmental and social proposals were submitted than governance proposals year-over-year (454 vs. 367), but these proposals did not reach a vote as they were withdrawn at record levels. Around 56% of human capital management proposals went to a vote (vs. 22% in 2018). The most prevalent reason for negative Institutional Shareholder Services (ISS) recommendations against Russell 3000 directors involved adverse corporate governance provisions and shareholder rights. The topics covered in the ISS Annual Policy Survey suggest that sunset provisions for multi-class capital structures, board responsiveness to low support for pay proposals, and director accountability related to climate change risk will be among the trends to watch next year.

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9/16/2019

SEC Guidance on Proxy Advisory Firms a Good First Step — But Stronger Rules Needed

Forbes (09/16/19) Burnham, Christopher

The Securities and Exchange Commission's Aug. 21 formal guidance and clarification that proxy advisors are subject to anti-fraud rules regarding statements that are materially false or misleading, that they must quickly correct misleading information about companies, and that they have to take more steps to reveal how they devise their shareholder recommendations "will help curb the runaway political power of proxy advisory services, which in recent years have become one of the most powerful arbiters of corporate governance policies in America," according to this opinion piece. The actions "are a welcome first step to fix the underlying problems with proxy advisory firms," but they must "go further to fully address the underlying problem with proxy advisors: that they serve as a conduit for investing with a political purpose, violating fiduciary duty, and historically, negatively affecting public pension fund performance." This is not merely environmental, social, and governance investing, according to this opinion piece. Instead, "this is political investing by politicians imposing political decisions on top of fiduciary duty." ESG "should never be confused with political investing. Impact investing is something entirely different, and it should also not be confused with ESG investing." An impact agenda is fine for a family office or church group, but it is not acceptable for pension plans that are investing other people's money.

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9/16/2019

Asset Owners Struggle With Divestment as ESG Tool

Pensions & Investments (09/16/19) Jacobius, Arleen

Asset owners such as the California State Teachers' Retirement System (CalSTRS) are reluctant to divest as they act to incorporate sustainability and environmental, social, and governance (ESG) factors into their investing. The threat of divestment can be a powerful instrument in persuading companies to act on ESG concerns, but once asset owners divest, companies no longer need to heed their concerns. Divestment can also negatively impact returns, which is partly why CalSTRS' divestments so far have been small. Yet even these small divestments have led CalSTRS' portfolio to underperform by about $5.8 billion since 2000. At a recent meeting to approve minor corporate governance revisions, the CalSTRS board was asked to add divestment to its toolkit as a way to persuade companies to reduce CO2 emissions. CalSTRS replied by saying it supported policies such as cap and trade, engagement with companies, and investments in sustainable businesses over divestment in light of its fiduciary duty. Other large pension funds are loath to divest for similar reasons. For example, Japan's Government Pension Investment Fund developed an ESG index for domestic equities but did not cut tobacco or alcohol stocks. At the California Public Employees Retirement System (CalPERS), managers also prefer alternatives to divestment, highlighting the efficacy of various engagement activities. A CalPERS representative reiterated that ESG is seen as "investment issues," not social issues, and that the fund's actions are based on its fiduciary duty.

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9/16/2019

Ray-Ban Investors Should Look Beyond the Optics

Wall Street Journal (09/16/19) Ryan, Carol

Share purchases by both EssilorLuxottica's (ESLOY) primary shareholder and investor Daniel Loeb offer a dim picture of where the company's governance battles are heading. Loeb has approximately a 1.2% stake in the company, according to a source. Leonardo Del Vecchio, who founded sunglass company Luxottica, has recently spent €150 million adding to his 32% stake in EssilorLuxottica, the entity created through a 2017 merger with lens company Essilor. Given earlier strife over who should head the company, this may be a signal that Del Vecchio isn't open to compromise. The share purchases began around the time a meeting was held between Del Vecchio and Loeb's Third Point, according to regulatory filings. Loeb likely will call for a quicker resolution to the governance saga, which is delaying the delivery of cost savings from the merger. The two companies plan to hire an external chief executive by the end of 2020—two years after the deal closed. Loeb could also campaign for new members to EssilorLuxottica's 16-strong board, which is short of global consumer expertise. The purchases Del Vecchio has made since early August represent just 0.3% of the company’s €57 billion market value, and he can't go much higher. Under French law, such a big investor would trigger mandatory takeover rules by purchasing more than 1% in a year. Further, his voting rights are capped at 31%. Still, Del Vecchio could tip a ballot on any board shake-up a bit more in his favor. In May, he defeated proposals by institutional investors to appoint two new independent directors in a tight vote. Any reduction in the company's free float makes it more difficult for minority investors to bring about change.

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9/16/2019

Response to SEC Subcommittee Recommendations—Universal Ballot and Vote Confirmations

Harvard Law School Forum on Corporate Governance and Financial Regulation (09/16/19) Zagoroff, Dimitri

All but two members of the Securities and Exchange Commission's (SEC's) bipartisan Investor Advisory Committee voted in favor of the Investor-as-Owner Subcommittee's recommendation on proxy plumbing in early September. The Investor-as-Owner Subcommittee was tasked with devising a plan for improving the efficiency of the proxy system after the SEC Roundtable last year. The subcommittee recommended that the SEC adopt a universal proxy card for contested meetings, require end-to-end vote confirmations, require all parties involved in proxy voting to cooperate in reconciling data on a regular basis, and conduct studies on investor views on anonymity and share lending. Glass Lewis believes universal proxy would both enhance shareholder rights and simplify the mechanics of proxy voting, while end-to-end vote confirmations would allow for a fully transparent and accurate voting system. And there is considerable potential for broad consensus and progress in these areas. The two committee members who voted against the recommendation expressed concerns about the terms of universal proxy, the inclusion of explicit references to the unwillingness of private actors to effect change, and the absence of any language covering shareholder proposals or proxy advisors. The prospect of raising difficult political tradeoffs could mean the topics may need to go through the comment process rather than through the subcommittee.

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9/13/2019

SSGA Finds Resistance Amid Progress on Board Diversity

IR Magazine (09/13/19) Maiden, Ben

The latest stewardship report from State Street Global Advisors (SSGA) indicates that progress has been made in its multi-year campaign to increase female representation in the boardroom, with 43% of companies, or more than 580 of the 1,350 firms identified as part of SSGA's Fearless Girl campaign, having added or committing to add a female director. The campaign targets companies with all-male boards. However, 57% of the companies targeted by the asset manager as needing to increase diversity have not taken action. The report states, "[I]n 2020, we will vote against the entire nominating and governance committee, not just the chair, in our target markets if we have concerns about the lack of gender diversity for four consecutive years and are unable to engage in productive dialogue." The companies that have not acted generally are mid-cap and smaller companies that sometimes have ownership concentrated under a major shareholder and/or have smaller boards, said Rakhi Kumar, senior managing director and head of environmental, social, and governance investments and asset stewardship at SSGA. Broken down by region, the percentage of companies identified as not having a woman on their board that have added or committed to adding a female director include 44% of Russell 3000 companies in the United States, 44% of 73 TSX companies in Canada, 85% of FTSE 350 companies in the United Kingdom, and 62% of companies in the STOXX 600 ex-UK in Europe.

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9/13/2019

How Institutional Investors Are Turning the Gender Diversity Dial on Corporate Boards

Benefits Canada (09/19) Porado, Martha

In 2017, a group of Canadian institutional and asset managers known as the 30% Club called for S&P/TSX composite index companies to boost female representation on boards and in executive management to 30% by 2022. The proxy voting process, as a cornerstone of shareholder engagement, will be key to keeping this goal within reach. In guiding its voting, the Alberta Investment Management Corp. takes an iterative approach, aiming for 20% women on an investee's board, and plans to aim for 30% women on boards in the next few years. Meanwhile, the British Columbia Investment Management Corp. has set its women-on-boards goal at 25%, and it will vote against a company that does not meet or have a plan to meet this requirement. In addition to voting policies, investors say that constructive conversation is a strong tool. As of 2019, 68.8% of TSX-listed companies have at least one woman on their boards; 33.7% have two or more women; 3.5% have a female board chair; and 3.3% have a female CEO. Institutional investors and asset managers involved in the initiative emphasize that in order to effectively engage their portfolio companies on board diversity, their internal corporate structure must reflect that philosophy. They note that some companies tend to use industry heritage as an excuse, so it is important to find companies that break that mold to show more conservative companies how to move forward.

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9/13/2019

AT&T Chief Laid Plans for His Exit. That Set Off a Shareholder Challenge.

Wall Street Journal (09/13/19) FitzGerald, Drew; Ramachandran, Shalini; Driebusch, Corrie

Elliott Management last week issued a report that publicly questioned the logic of AT&T's (T) strategy under CEO Randall Stephenson. The report also questioned whether his successor, John Stankey, could successfully integrate the conglomerate into a force able to compete with giants in streaming and advertising. Stephenson has defended his strategy, saying AT&T is boosting its programming investments, helping HBO compete with growing numbers of streaming services, and harnessing data from its phone and TV customers to compete with the biggest ad platforms. Despite high-profile acquisitions, AT&T shares have been flat since Stephenson took over in 2007. The stock hit a multiyear low in December as investors worried about the $160 billion in debt the company had accumulated from its acquisitions. This year, the shares gained 33% before Elliott's letter. Sources close to the company say AT&T will resist any attempt to dictate its executive suite, because board members generally support Stephenson and Stankey. Elliott, which must decide by the end of January whether to start a proxy fight, criticized AT&T for pushing out much of the leadership at DirecTV and Time Warner, a sentiment shared by some current and former executives. AT&T stalwarts point out that key people continue to work at both units, and Stankey recently secured a content partnership with Hollywood director and producer J.J. Abrams. Stankey's biggest initiative, a streaming service called HBO Max, has yet to launch, and its initial structure was heavily criticized. The current strategy for the service remains unclear.

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9/13/2019

AT&T Showdown Raises Question: How Much Fat Can Be Cut?

Bloomberg (09/13/19) Kharif, Olga

Elliott Management thinks that AT&T (T) can cut at least $5 billion annually by closing stores and cutting costs for functions such as finance, human resources, and marketing. The fear of deeper cuts spurred AT&T's union, the Communications Workers of America, to issue a statement this week condemning Elliott's plan as "outdated." Some analysts say AT&T is already slimming down as quickly as possible, but Michael Mahoney, senior managing director at Falcon Point Capital, says that the company would need to cut more than $6 billion in costs to catch up to its main rival, Verizon Communications Inc. (VZ), in gross margin. Since acquiring Time Warner Inc. last year, AT&T has become a media conglomerate and one of the most indebted companies in the United State. Verizon has pursued a more piecemeal media strategy, focusing on phone service after an attempt to turn a collection of aging dot-com brands into an online ad empire. Mahoney says that simplifying management, along with a 10% reduction in the company's workforce and a new incentive program to make remaining employees 10% more productive, could significantly improve AT&T's revenue per employee. Mahoney also said AT&T should close a third of its stores and remodel another third. It should also explore options for its landline business and its DirecTV satellite service, which are both in long-term decline and may simply have to be closed if they cannot be sold. Some observers see potential for AT&T to leverage its far-flung operations, using one of the business' technologies—such as analytics capabilities—across the rest of the company.

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9/12/2019

Research: When Women Are on Boards, Male CEOs Are Less Overconfident

Harvard Business Review (09/12/19) Chen, Jie; Leung, Woon Sau; Song, Wei

Female boardroom representation leads to less aggressive risk-taking and better acquisition and investment decisions, yielding benefits for shareholders. The authors' research suggests that this may be because female board members help temper the overconfidence of CEOs, improving overall decision-making for the company. Prior research has shown that overconfidence can lead CEOs, most often male CEOs, to overestimate returns and underestimate risk, destroying shareholder value. To investigate how a board might moderate overconfidence, the authors gathered data on 1,629 listed firms in the United States for the time period 1998 to 2013; women comprised 10.4% of the board members and 2.9% of the CEOs in their sample. An analysis of this data suggests that, by reducing CEO overconfidence, female board representation may also result in less aggressive investment policies and better acquisition decisions. The authors also examined the differences in accounting and stock performance for 516 firms during the financial crisis of 2007 to 2009, and found that female board representation reduced the negative impact of the crisis on firm value, return on assets, and return on equity. The research suggests that female board representation matters more in certain industries that tend to have more overconfident CEOs, and that female board representation can be especially beneficial in helping firms weather financial crises.

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9/12/2019

New Research Shows the Career Path to CEO Is Different for Women

Quartz (09/12/19) Werber, Cassie

A recent Georgetown University study finds that more women without CEO experience are being invited onto boards, which could in turn help qualify more female candidates to become CEOs. Researchers reviewed the 3,000 largest publicly traded U.S. companies, identifying 140 female CEOs. The researchers randomly selected 100 of these directors, excluding people who founded or inherited the company, and paired them with male CEOs of comparable companies, studying both groups' previous job roles and board experience. The data showed that when companies hired outsiders into the role of CEO, only 18% of the women hired had previous experience as CEOs, while half of the men hired had been CEOs. However, 60% of the women CEOs had previous board experience, compared to 42% of the men, and more than 20% of the women had been on the board of a private company, compared to 12% of men. The research comes amid a concerted push for better female representation on boards; some countries and states have instituted quotas, while others have called for more organic, company-led change as a sustainable alternative. In the United States, where women account for 24% of board directors, companies that fail to diversify their boards are under increasing scrutiny. The researchers note that, to date, "studies of the ascension to CEO have been based primarily on the career paths of men, since men represent 95% or more of CEOs." They say that their findings "may signal a significant increase of women in the CEO talent pool in the years to come."

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9/12/2019

Why Corporates Are Waking Up to Stakeholder Capitalism and Fairer Value Chains

Forbes (09/12/19) Cooper, Kate

The Business Roundtable on Aug. 19 updated its mission statement to focus on all stakeholders. A couple of weeks later, 34 G7 big-brand companies formed the Business for Inclusive Growth (B4IG) coalition under the Organization for Economic Cooperation and Development in an effort to "step up business action to advance human rights throughout their value chains, build inclusive workplaces, and strengthen inclusion in their internal and external business ecosystems." The Business Roundtable's announcement and B4IG shows that corporations are waking up to stakeholder capitalism, writes Kate Cooper, head of research for policy and standards at The Institute of Leadership & Management. Charles Hampden-Turner and Fons Trompenaars challenged the notion of a single model of capitalism based purely upon maximizing shareholder wealth in their landmark book "The Seven Cultures of Capitalism," published in 1993. They expanded on their ideas four years ago in "Nine Visions of Capitalism," recognizing that there are many different structures in which commercial activity can take place. At the heart of what Hampden-Turner and Trompenaars are calling for is a more conscious brand of capitalism that recognizes that every link in the chain that creates and provides goods or services must be appropriately and fairly rewarded. Every link includes the various types of stakeholders highlighted in the Business Roundtable's announcement. Corporates are now acknowledging that the chain is not sustainable—and businesses will fail as a consequence—if any single link benefits at the expense of another, according to Cooper.

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