Media Center

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

Sarissa Urges Alkermes Shareholders to Vote the Universal Blue Card to Upgrade Alkermes for the Benefit of Shareholders
Engine Capital Issues Letter to the Board of Directors of Avantax Regarding the Urgent Need to Explore Strategic Alternatives
Tennessee AG Probes Asset Managers Over Climate Change Policies
The Money Behind the Coming Wave of Climate Litigation
Engine Capital Issues Statement Regarding Its Efforts to Facilitate a Negotiated Refreshment of Brenntag's Supervisory Board
Masimo Board Accepts Appointment of Investor's Nominee, With Caveats
Jana Partners Responds to Freshpet's Half-Measure Attempt to Resolve Rampant Conflicts of Interest, Governance Failures, and Breaches of Fiduciary Duty
Global Net Lease, The Necessity Retail REIT, and AR Global Enter Into Cooperation Agreement With Blackwells Capital
Opinion: Elliott Is Back at NRG Energy. Here’s How the Firm Plans to Build Value
Janus Henderson Announces Changes to Board of Directors
Purplebricks' £1 Sale to Rival Strike Backed by Shareholders
California, New York Pensions Vote Against Toyota Chairman
Netflix Shareholders Withhold Support for Executive Pay Package
Freshpet Files Preliminary Proxy Statement
Illumina Expands Board After Fight With Icahn
Director-Shareholder Engagement: Getting It Right
Masimo's Proxy Battle With Politan Capital: Activism for Positive Change or Disruption?
Environmental, Social Policy & Related Corporate Governance Issues in Proxy Season 2023
Corporate ESG Requirements Are About to Ramp Up. Here’s How CFOs Can Prepare.
2023 Proxy Season: More Proposals, Lower Support
Reassessing the Board Fight That Was Meant to Transform Exxon
Opinion: Brenntag SE — Increasingly Likely Separation Offers Upside Potential
World's Biggest Investment Fund Says Firms Mismanaging Climate Risk Could Face Exclusion From Next Year
The Selective Corporate Definition of 'Long-Term' When a Shareholder Activist Shows Up
Following Setbacks, Climate Advocates Rethink Their Approach
Opinion: Activist Shareholders Threaten Japan’s AGM Season
Opinion: Wagamama Can't Dismiss Its Bad Hedge-Fund Reviews
ESG Activism Down This Proxy Season, ISS says
2022 Asset Stewardship Report: Engagement and Voting
Why Activist Investors Are Going to Have a Busy Year

6/5/2023

Sarissa Urges Alkermes Shareholders to Vote the Universal Blue Card to Upgrade Alkermes for the Benefit of Shareholders

Business Wire (06/05/23)

Sarissa Capital on Monday released a letter to shareholders of Alkermes plc (ALKS). In it, Sarissa states, "We are long-term Alkermes shareholders owning over $400 million in stock who believe that the company is significantly undervalued and not run optimally. For this reason, over the last several years, we have attempted to engage in meaningful discussions with Alkermes regarding the business and operations of the company, including its discordant business franchises, cost structure, capital allocation, and corporate governance." The letter continues, "We are trying hard to avoid this proxy contest and have offered reasonable settlement compromises including delaying our appointment to the board and making it contingent upon stock price targets not being met. The board shunned this offer and indicated that they would be willing to meet with us two times per year if we drop our request for board representation (as you know, most companies meet with major shareholders at least four times per year as a matter of course)." The letter adds, "We are a large, long-term shareholder with a stellar track record of success generating value for shareholders by working collaboratively in the boardroom. We have proposed excellent candidates and cannot understand why the company is prepared to spend such a tremendous amount of time and shareholder money to keep us off the board. We will clearly add a shareholder perspective that currently does not exist in the boardroom. We hope to continue our dialogue with the independent board members in the hopes of reaching an amicable settlement so that we can begin to work together to create value for all shareholders. Unfortunately, we fear Richard Pops, the CEO and Chairman of Alkermes, has far too much control on the board to allow a shareholder-favorable settlement to occur." Sarissa continues, "Richard Pops has presided over tremendous shareholder value destruction since becoming CEO of Alkermes over thirty years ago. For too long, Alkermes has been run for the benefit of management and not for shareholders. In fact, for over thirty years, the company has almost consistently operated at a loss. Even in the last five years, despite annual revenues exceeding $1 billion, Alkermes has consistently operated at a net loss and Alkermes’ stock price has declined nearly 40% and underperformed the iShares Biotechnology ETF (IBB) by approximately 57% (calculated by subtracting the percentage change of Alkermes’ share price from the percentage change of IBB price from 06/01/2018 to 06/02/2023. The letter states, "Generating over $1 billion in revenue for five years and operating at a loss for all five years indicates a fundamental problem with the business model. In addition to issues with poor governance, expense management and capital allocation, Alkermes is basically a patchwork of subscale businesses. The revenue potential of the commercial products is restrained by subscale and expensive efforts. The manufacturing business is undersized and, in addition to the mishaps and delays over the years, may very well be unprofitable. Research and development is inefficient and expensive with the company’s extended efforts in cancer not building on the company’s expertise in psychiatry. (Admitting the inefficiency of its endeavor into oncology, the company announced at the prodding of Sarissa and other investors its intention to spin the oncology business – a good first step but certainly too little, too late.) Expenses are exorbitant as a percent of revenue (~113% for the year ended 2022) and outsized relative to Alkermes’ peers even before accounting for the fact that roughly a third of revenue is typically derived from royalties that should fall directly to the bottom line."

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6/5/2023

Engine Capital Issues Letter to the Board of Directors of Avantax Regarding the Urgent Need to Explore Strategic Alternatives

Business Wire (06/05/23)

Engine Capital LP, which owns approximately 2% of the outstanding shares of Avantax Inc. (AVTA) has sent a letter to the company’s board of directors. The letter commends Avantax for completing the TaxAct divestiture and returning the proceeds of that sale to stockholders through a Dutch tender offer and regular share buybacks. However, it states, "Despite these efforts and recent business momentum, Avantax’s stock continues to trade at a meaningful discount to its strategic value. We believe this is primarily due to the fact that Avantax is a subscale asset in the consolidating asset management industry where size is increasingly important. That is why we encourage the Board to initiate and publicly commit to a review of strategic alternatives – including a sale of the entire Company – which we believe could fetch between $27 and $32 per share, or a 34% premium for stockholders. We are aware of the discussions management and the Board have had with several parties over the last year regarding a potential sale of Avantax. Unfortunately, none of these discussions were in the context of a formal process so these potential buyers were not compelled to put their best offer forward or felt the sense of urgency that a competitive auction would create." The letter goes on to detail several reasons why Engine firmly believes now is the right time for Avantax to publicly announce a sale process, including that Avantax is a subscale asset in a consolidating industry where size matters; Avantax is unlikely to optimize its cost structure as a standalone entity, given its historic holding company structure; Avantax’s competitive positioning is deteriorating; Avantax’s current structure as a standalone business is putting pressure on profitability; Avantax’s recent business momentum makes a sale more timely; absent a sale, the standalone value of the business is potentially lower than where the stock trades today – implying downside; Avantax’s stock has traded down to a price where a transaction is eminently doable given relevant merger premiums; and while hedging interest rates may make sense, it should only be done after the company has run a formal sale process.

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6/5/2023

Engine Capital Issues Statement Regarding Its Efforts to Facilitate a Negotiated Refreshment of Brenntag's Supervisory Board

BusinessWire (06/05/23)

Engine Capital LP, which owns about 1% of Brenntag SE's (BNTGY) outstanding shares, has issued a statement on its efforts to facilitate a consensual resolution with the board to end the current election contest. This comes after Engine's announcement that it will support PrimeStone Capital LLP's two director candidates, Joanna Dziubak and Geoff Wild, at Brenntag's June 15 annual general meeting. Engine managing partner Arnaud Ajdler said, "Engine and other shareholders have spent several months engaging with Brenntag about the composition of its Supervisory Board, its current strategy, and the merits of a specialties business separation. In an effort to facilitate a resolution of the election contest that would benefit all stakeholders, Engine recently took the step of proposing that the Supervisory Board expand to eight members to make room for PrimeStone's highly qualified director candidates. This could be easily achieved by delaying the company's annual meeting by a few weeks. Unfortunately, Brenntag remains unwilling to engage and seems intent on extending a costly and unnecessary election contest to maintain the status quo instead of welcoming shareholder-designated directors to the boardroom. We are disappointed that the supervisory board continues this concerning pattern of entrenchment, despite leading proxy advisory firms and numerous shareholders making clear that change is urgently needed at Brenntag."

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6/5/2023

Masimo Board Accepts Appointment of Investor's Nominee, With Caveats

MedTech Dive (06/05/23) Taylor, Nick Paul

The board of Masimo (MASI) has accepted the appointment of investor Politan Capital Management's director nominee Michelle Brennan, pending a shareholder vote. Politan named Brennan and management partner Quentin Koffey as board candidates amid Masimo's attempt to convince shareholders to support its own nominees and counter a challenge that could force a change in company direction. Masimo previously took issue with Brennan's lack of experience as a senior executive and called attention to her dearth of credentials compared to those of its candidates, while still comparing her more favorably to Koffey. The company said then it would merely consider Brennan along with the other nominees if shareholders approved the board's expansion. It has since disclosed that its board has authorized appointing Brennan, if stockholders clear the expansion and appoint Masimo's two nominees. Julie Shimer, chair of the board's nominating committee, took another dig at Koffey, whom she said had “a history of misstatement and distortion and no relevant experience.” By contrast, Shimer played up Brennan's “operational and leadership experience” at Johnson & Johnson (JNJ) and “prior public company board service at Cardinal Health [CAH] and Coupa Software [COUP].” She stated: “Though Politan has not permitted us to interview Ms. Brennan after repeated requests, we conducted independent due diligence on her past leadership and board service experiences and feel she would bring a constructive and relevant perspective to the board.”

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6/5/2023

Global Net Lease, The Necessity Retail REIT, and AR Global Enter Into Cooperation Agreement With Blackwells Capital

Business Wire (06/05/23)

Global Net Lease Inc. (GNL) and The Necessity Retail REIT Inc. (RTL) announced a cooperation agreement with Blackwells Capital. The pact stipulates that Blackwells and its affiliates will withdraw their nomination notices and proposals at both GNL and RTL, and support the share issuances for the previously announced GNL-RTL merger and internalization transactions at the GNL special meeting. GNL CEO James Nelson and RTL CEO Michael Weil jointly stated, “The combination of GNL and RTL will create a leading global net lease REIT that is positioned for long-term growth and potential trading multiple expansion comparable to other net lease REITs of this size and scale. The combined entity will be internally managed, resulting in significant cost savings, and will adopt enhanced corporate governance practices that will ensure the combined company operates in the best interests of all current and future investors. We are pleased to have Blackwells' support of the Merger and internalization transaction and look forward to working with Blackwells to create value on behalf of all shareholders.” Blackwells CIO Jason Aintab has welcomed this development. “The merger of GNL and RTL creates a new company of scale in the sector that can be singularly focused on creating value for all public shareholders. With our support for the transaction now in place, we look forward to the completion of the merger and lend Mr. Weil and the leadership team our full support, as we believe investors will see great success following the internalization and merger,” he declared. Under the terms of the agreement, parties will release all claims made prior to the settlement and end their respective actions in Maryland state court and New York federal court. The Blackwells Parties have vowed to comply with certain standstill and voting commitments related to the Cooperation Agreement, which will be filed by the company with the U.S. Securities and Exchange Commission as an exhibit to the Current Report on Form 8-K.

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6/3/2023

Opinion: Elliott Is Back at NRG Energy. Here’s How the Firm Plans to Build Value

CNBC (06/03/23) Squire, Kenneth

On May 15, Elliott Management sent a letter to NRG Energy (NRG), calling on the company, in which it holds a more than 13.0% stake, to implement a plan that includes appointing five new independent board members it has identified and making operational and strategic improvements, including a review of Vivint Smart Home. This is not Elliott’s first foray with NRG, notes Ken Squire, the founder and president of 13D Monitor. In January 2017, the firm filed a 13D on NRG with a plan centered around operational improvements and portfolio actions. "Elliott saw a company with an attractive collection of generation and retail assets that had lost its focus as it expanded beyond its core merchant power and retail electricity businesses, which led to an uncompetitive cost structure, an overleveraged balance sheet, and a complex asset portfolio," writes Squire. "As part of its plan, Elliott suggested that NRG focus on its core businesses by reducing costs, monetizing non-core assets to simplify its portfolio and paying down debt. NRG conducted a four-month business review that targeted initiatives, including $1.065 billion of total cost and margin improvement, $2.5 billion to $4.0 billion of asset divestitures and $13 billion of debt reduction. In February 2017, Elliott settled with the company for the replacement of two directors, including the chairman, with a longtime director (since 2003) taking over the chairman role. Elliott exited their 13D six months later with a 103.5% return versus 7.5% for the S&P 500. One year later, one of their directors resigned from the board. Two years after Elliott wrapped up the engagement, the other director resigned." Squire says, "Since the end of the firm’s engagement, NRG has reversed much of its progress and has underperformed the S&P Utilities Index by 44% and integrated power peers by 53%, which can largely be attributed to various operational failures and a loss of strategic direction. NRG missed two years of financial guidance in 2021 and 2022 after struggling with repeated plant outages and demonstrating an inability to manage through extreme weather events. Perhaps more impactive to its dismal performance was the company’s acquisition of Vivint (a home security business), completed on March 10. This acquisition prompted a 20% decline in NRG’s market cap over the first week and begs the question of why the company would make such a large bet on a strategy that many other firms have already failed to execute successfully." Squire continues, "Missteps aside, Elliott thinks that the company’s retail franchise is a crown jewel that has been a market leader in Texas for over 20 years and there remain several opportunities to get back on track. Now Elliott is back with a plan that is remarkably similar to its 2017 plan: improve operations, refresh the board, and fix strategy and capital allocation. Elliott calls on the company to adopt an operationally focused strategy of improving reliability, reducing costs and meeting financial commitments. The firm thinks that this could lead to at least $500 million of recurring, EBITDA-accretive cost reductions by 2025. Additionally, Elliott believes that NRG should conduct a strategic review of its home services strategy, including Vivint, and focus on the core integrated power business. The company should also establish a new capital allocation framework to return at least 80% of free cash flow to shareholders, with any growth investments focused on the generation and retail businesses. Elliott states that this plan would allow the company to return $6.5 billion of excess capital (~85% of the current market cap) to shareholders over the next three years. Elliott believes that this plan could create over $5 billion of value, driving the stock price to upward of $55 per share." Squire adds, "To effectively oversee this plan, Elliott believes that the board needs new independent directors with expertise in the power and energy industry. Elliott has identified five candidates that it believes will help implement the foregoing operational and strategic changes. The board and management currently consist of the same chairman Elliott agreed to in 2017, five (out of 10) of the same directors from before Elliott’s 2017 engagement and the same CEO as from before the firm’s engagement. Elliott does not come out and say that the company needs a new CEO, but the firm certainly dances around it in the May 15 letter: It notes that the company 'must restore the credibility of the management team.' 'The Board should also evaluate the management team’s ability to drive high-performance operations on a sustained basis.' 'Strong management will be key to the success of the Repower NRG Plan,' and 'significant changes are needed.'" Squire continues, "One of the biggest, but under-recognized benefits of shareholder activism is that activists often not only create value during their engagement, but they also put the company on the right trajectory to sustain shareholder value over the long term. The latter did not happen here, and now Elliott is realizing the difference between giving someone a fish and teaching them to fish. Or, to use a more business-like analogy, the difference between 'clock building' and 'time telling' as explained by author Jim Collins in the book 'Built to Last.' 'Searching for a single great idea on which to build success is time telling; building an organization that can generate many great ideas over a long period of time is clock building. Enduring greatness requires clock building,' Collins wrote. In 2017, Elliott’s campaign was about time telling. To achieve the kind of long-term value the firm appears to be aiming for this time around, it is going to have to build a clock." Squire concludes, "They will have time to make this happen. Elliott has only recommended directors instead of nominating them, which signals amicable engagement, but it cannot formally nominate directors until Dec. 29 and has until Jan. 28, 2024, to make nominations. The amount of change that is needed to sustain long-term value as Elliott alludes to in its letter will take more than just replacing two directors this time, so an early settlement might not be in the cards. It should be noted that activists have historically not been that successful the second time around when they go back to the well. A 2019 study conducted by 13D Monitor concluded that when activists file a second campaign at the same company, they have an average return of 16.78% versus 28.56% for the S&P 500 the second time around. That’s compared to an average return of 46.54% versus 6.25% the first time they engaged."

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6/2/2023

Janus Henderson Announces Changes to Board of Directors

Business Wire (06/02/23)

Janus Henderson Group (JHG) announced Ed Garden's resignation from its board, with Trian Fund Management partner Josh Frank appointed an independent non-executive director to succeed him as of June 9. Garden has elected to retire as Trian's CIO to concentrate on managing his personal assets through his family office, and he will remain a Senior Advisor to Trian. "While we are sorry to lose [Garden's] helpful insights, we are delighted to welcome Josh as an independent director on the Board," stated Janus Henderson Board Chair John Cassaday. "Josh is an extremely well-regarded leader in corporate strategy development and corporate governance, and his breadth and depth of experience will be invaluable in helping guide and position Janus Henderson for future success." Janus Henderson CEO Ali Dibadj praised Garden "for the truly valuable contributions he made in developing the strategy we are now executing to help clients define and achieve superior financial outcomes through differentiated insights, disciplined investments, and world-class service." Trian CEO Nelson Peltz declared: "As the Company's largest shareholder, Trian strongly supports [Dibadj] and his management team's vision and execution and believes that the Company is well-positioned to help clients achieve their desired investment outcomes while delivering significant long-term shareholder value. With his fresh perspectives on corporate strategy and governance, Trian is confident Josh will bring new viewpoints to serve the best interests of the firm, its clients, and shareholders."

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6/2/2023

California, New York Pensions Vote Against Toyota Chairman

Reuters (06/02/23) Dolan, David; Leussink, Daniel; Shiraki, Maki

The California Public Employees' Retirement System (CalPERS) and the Office of the New York City Comptroller have opposed the re-election of Toyota Motor (T) Chairman Akio Toyoda. They also supported a resolution calling for improved disclosure of Toyota's climate change lobbying. This follows governance issues raised by two leading proxy advisory firms, with Glass Lewis recommending that shareholders block Toyoda's re-election, citing his responsibility for an insufficiently independent board. Climate activists and green investors have taken aim at the carmaker in recent years, calling out its sluggish launch of battery-electric vehicles. Toyota has previously said its board satisfies governance standards established by the Tokyo Stock Exchange for independent oversight, and it would act with "objectivity, independence, and an ability to conduct appropriate supervision." It noted that Toyoda had been re-nominated to the board because he would extend Toyota's offerings to include "mobility" services. The company's board has urged investors to oppose the climate lobbying disclosure resolution, claiming Toyota was committed to carbon neutrality by 2050 but required the flexibility to adjust rapidly, including in its disclosure policies. Toyota said it makes societal contributions through manufacturing, adding that it has been negotiating with CalPERS and heard its views that outside directors should make up more than half of the board. CalPERS said it had voted approximately 20 million shares on the Toyota proposals, less than 0.2% of the stock on issue, but the pension's voice carries weight among global investors. The New York City pension funds owned 6.7 million shares in Toyota Group companies as of March 31, and their stake in Toyota Motor remains uncertain. New York City Comptroller Brad Lander called the Toyota board inadequately independent. The automaker has claimed that its rollout of alternatives to gasoline-engine cars is generally better for lowering carbon emissions and more practical than simply an EV transition. In April, Toyota sold 8,584 EVs globally, comprising more than 1% of its global sales in a single month for the first time. It aims to sell 1.5 million EVs per year by 2026. Toyota shares closed up 3.4%, exceeding the 1.2% increase in the Nikkei index. Company stock has yielded 13% including dividends this year, compared to the Nikkei index's 21%.

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6/2/2023

Netflix Shareholders Withhold Support for Executive Pay Package

Reuters (06/02/23) Chmielewski, Dawn

Netflix (NFLX) shareholders on Thursday refused to vote for the company's proposed 2023 executive pay package following striking Hollywood writers' push to reject the resolution. The Writers Guild of America West (WGAW) called on investors to oppose the package, describing it as "inappropriate" during the strike. "While investors have long taken issue with Netflix's executive pay, the compensation structure is more egregious against the backdrop of the strike," wrote WGAW President Meredith Stiehm. According to her, Netflix can afford to pay $68 million a year to writers seeking better compensation if it had the means to spend more than $166 million on compensation last year for top executives. Netflix said the vote count would be disclosed in a regulatory filing. The executive pay package was supported last year by just 27% of shareholder votes cast, after which Netflix said it made revisions that included setting a salary cap for its co-chief executives and a performance-based bonus plan. This year, Netflix Executive Chairman Reed Hastings is set to receive a $500,000 wage and $2.5 million in stock, while co-CEOs Ted Sarandos and Greg Peters will each collect $3 million in annual pay. Sarandos stands to collect a stock payout of $20 million and qualifies for a bonus of up to $17 million. Meanwhile, Peters will receive $17.3 million in stock and a bonus of up to $14.3 million.

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6/2/2023

Masimo's Proxy Battle With Politan Capital: Activism for Positive Change or Disruption?

NASDAQ (06/02/23) Ward, Ben

Politan Capital's proxy battle at Masimo Corp. (MASI) is being closely watched by shareholders and the med-tech industry. The outcome could alter the company's corporate structure and strategic direction and put shareholders in a better position, according to Politan, which holds a 9% stake in the company. Masimo's stock price has fallen 14.9% this month. Politan submitted a formal notice on May 1 to present a stockholder proposal and nominate candidates to Masimo's board at the June 26 annual general meeting. In a May 23 letter to the board, Politan called for independent oversight and greater accountability on the board to improve corporate governance and unlock its potential for profitable innovation and growth. Masimo released a presentation on May 31 in support of its management team and strategic approach, emphasizing the strength of its core pulse oximetry business and recurring revenue from long-term contracts, among other things. The presentation followed a disclosure that Masimo founder, CEO, and Chairman Joe Kiani purchased more shares in the company. Politan argues that its nominees, Michelle Brennan and Quentin Koffey, possess the skills, experience, and shareholder alignment needed to address Masimo's governance and strategic challenges. Although Piper Sandler analyst Jason Bednar said Politan has the potential to influence higher earnings, he noted that the proxy fight was far from a guaranteed positive for shareholders.

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6/2/2023

Corporate ESG Requirements Are About to Ramp Up. Here’s How CFOs Can Prepare.

Wall Street Journal (06/02/23) Mutoh, Anna

The growing need for companies to address environmental, social, and governance (ESG) issues is placing new responsibilities on financial executives. For instance, chief financial officers will be tasked with creating systems for collecting data to meet upcoming rules from the U.S. Securities and Exchange Commission (SEC). Some may think allowing finance departments to handle ESG responsibilities is the best path forward, but experts say creating an internal task force is the better option. Robert Michlewicz, chief executive of Visual Lease, says this task force should be able to reach out to the entire company and collect the necessary data. A system will also be needed to store and interpret the data. Collaboration with chief technology officers will be needed to ensure this process is automated. For international firms, it will be important to stay updated with rules imposed by the SEC, the European Union’s Corporate Sustainability Reporting Directive, and the International Sustainability Standards Board. According to a 2023 Rate the Raters survey conducted by the SustainAbility Institute at global sustainability consulting firm ERM, many investment teams are now mandated by their companies to incorporate ESG ratings and data into their investment decisions, but more than half of companies and investors said they have only moderate trust that ESG ratings accurately reflect ESG performance. More than half of the companies surveyed said they engage with at least six ESG ratings providers. Unlike credit-ratings firms, which generally hold annual meetings with companies, ESG ratings firms don’t meet as often with those they rate and the ratings system isn’t standardized. “It’s far less of an interactive process,” said Clare Scherrer, CFO of Smiths Group (SMGZY), a London-based engineering company. What has worked well, according to finance chiefs, is to take the time to work with ratings firms, explain how the company works, and respond proactively rather than leaving the raters to rely on publicly available information that might be difficult to locate. This prevents wasted effort on issuing reports that aren’t relevant, some CFOs said. “If you don’t own the narrative, somebody will create the narrative for you, and you might not like that narrative,” said Curtis Ravenel, a member of the secretariat of the Task Force on Climate-Related Financial Disclosures, speaking in a recent webinar. “At the end of the day,” Smiths Group's Scherrer said, “if an investor is going to put $50 million to work in your company, they want to understand directly what your priorities are, what you’re doing, and how you are reporting.”

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6/1/2023

2023 Proxy Season: More Proposals, Lower Support

Harvard Law School Forum on Corporate Governance (06/01/23) Washington, Paul; Spierings, Merel

Thus far this year, shareholders have filed 803 proposals at Russell 3000 companies, compared to 801 in the first half of 2022 and 798 proposals filed in all of 2021. The sharpest increase in shareholder proposals has been in the area of executive compensation, driven by a dramatic rise in the number of proposals targeting severance arrangements. About 83% of the shareholder proposals filed this year have been at S&P 500 companies, compared to 79% in the first half of 2022, suggesting that shareholders are continuing to focus on companies where they can get the most attention, not necessarily the companies that may merit the most attention, as smaller companies generally have less robust ESG programs. While the number of shareholder proposals is increasing, support is declining across the board. Continuing the trend seen in 2022, support dropped for shareholder proposals in every category: governance, executive compensation, environmental, social, and human capital management. As in 2022, governance proposals continued to gain higher levels of average support than those in other areas. A number of factors appear to be contributing to the decline in support, including the proscriptive nature of some proposals, the steps companies have already taken to address the topics raised by proposals, and major institutional investors taking a more discerning, case-by-case approach in evaluating shareholder proposals as compared to a few years ago. Among the various categories, environmental proposals have seen the sharpest drop in support, from 34% to 21% in the first half of 2022. Within that context, shareholder proposals on climate continued to dominate environmental proposals and be the most resilient in terms of average support. Anti-ESG proposals continue to underperform their pro-ESG counterparts: thus far, support for such proposals is averaging 7% in the S&P 500 (6% in the Russell 3000), down from 8% in 2022 (9% in the Russell 3000). The only topic where anti-ESG proponents seem to be getting traction this year is on CEO/chairman separation, a traditional governance topic.

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5/31/2023

Reassessing the Board Fight That Was Meant to Transform Exxon

New York Times (05/31/23) Sorkin, Andrew Ross; Mattu, Ravi; Warner, Bernhard

At Exxon Mobil's (XOM) annual shareholder meeting on May 31, investors will vote on a series of proxy measures calling on the company to reduce emissions and accelerate its decarbonization efforts. However, climate investors and others do not expect a repeat of Engine No. 1's victory two years ago, when the San Francisco-based hedge fund won three seats on Exxon's board, and argue that its efforts have achieved negligible results. According to Harvard Business School senior lecturer Mark Kramer, "Exxon has continued to invest aggressively in expanding its oil and gas production." Meanwhile, As You Sow President and chief counsel Danielle Fugere noted that Engine No. 1 "has not made a discernible difference in the way Exxon is addressing climate change." Further, Follow This founder Mark van Baal said the hedge fund was "the biggest disappointment in the fight against climate change." However, a spokesperson for Engine No. 1 stressed several changes at Exxon, including the introduction of net-zero targets for its Permian Basin operations in Texas and New Mexico, early-stage carbon-capture and hydrogen projects, and investments in lithium mining. The spokesperson noted that "none of those initiatives were in the company's plans before Engine No. 1's engagement." Moreover, Legal & General Investment Management contends that the hedge fund's proxy fight "changed the narrative."

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5/31/2023

World's Biggest Investment Fund Says Firms Mismanaging Climate Risk Could Face Exclusion From Next Year

CNBC (05/31/23) Meredith, Sam

Norway's $1.4 trillion sovereign wealth fund Norges Bank Investment Management says it is willing to exclude companies that mismanage climate risk starting in 2024, shortly after it pledged to support shareholder proposals at Chevron (CVX) and Exxon Mobil's (XOM) respective annual meetings on Wednesday. The proposals aim to force U.S. oil companies to bring their climate agendas in line with the Paris Agreement and commit to total carbon emission cuts by 2030. The fund said it evaluates every shareholder proposal individually, and points out differences between European and U.S. oil majors' strategies to address Scope 3 emissions generated by customers' utilization of their oil and gas. “We are a particularly active owner when it comes to climate,” said Carine Smith Ihenacho at Norges. The fund announced in 2022 that it would exercise a tougher position on companies that do not adopt credible climate plans. “We clearly said it is in our long-term interest that the companies in our portfolio will get to net zero by 2050 because, for our financial returns in the long term, we think that will be beneficial,” Ihenacho noted. “As an active owner, we really want to influence and push the companies towards setting net-zero 2050 targets and also push them towards having credible transition plans. By that, we mean science-based transition plans.” Norges has invested in more than 9,000 companies in 70 nations, while Ihenacho said dialogue and voting are the main tools the fund aims to wield when engaging with corporate directors on environmental, social, and governance factors, although it could soon be forced to sell out of holdouts. “I think our starting point is very much that we want to be an owner and want to influence the companies,” Ihenacho said. “Selling out is not going to solve the climate crisis at all. You just sell to somebody else who may care less about climate as an owner than we do. Having said that, it may come to a point where we feel the company is absolutely not listening to us, they are not reporting anything, we see no changes, we may then sell out. We may decide to sell out.” Ihenacho continued, “The earliest there will be any companies either on an observation list or excluded will be next year or maybe the year after that. We will try to use our ownership tools first.” Dutch investor and campaign group Follow This has proposed resolutions at several oil producers demanding faster green transition plans. Chevron and Exxon Mobil have advised shareholders to reject such resolutions at their respective annual meetings.

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5/31/2023

The Selective Corporate Definition of 'Long-Term' When a Shareholder Activist Shows Up

Forbes (05/31/23) Mansouri, Richard

Companies often use the term “long-term” to defend their track records, so it would be beneficial to understand how these companies actually define “long-term” and whether such definition takes into account the time that has already been spent by the companies’ directors in their efforts to provide long-term value. Typically when an activist appears, a company tends to overlook the fact that its board has been in place for a lengthy amount of time, and that the directors on such boards have been amply compensated throughout. Many directors have been on the board for a period of time already nearing “long-term” as accepted by most conventional definitions. The 2022 U.S. Spencer Stuart Board Index found that the average tenure of a director on the board of an S&P 500 company was approximately 7.8 years and the average annual total compensation of such board members was about $316,000. This was for attending an average of about eight board meetings annually. A hypothetical director serving an average tenure of 7.8 years would receive nearly $2.5 million in aggregate compensation over such a tenure. Meanwhile, shareholder activists tend to invest in companies whose stock price has underperformed and there have been numerous situations where shareholders of public companies engaged by activists have witnessed significant underperformance over many years before an activist has shown up, while the directors of such companies have been receiving sizable rewards. When a shareholder activist appears, companies often make significant efforts to explain why they have underperformed and why such underperformance will be rectified if the existing directors were granted more time. Companies also will seek to present their stock price performance by selecting a favorable time frame and/or peer group against which to measure such performance. Often absent from this presentation is the aggregate compensation received by each board member over their tenure compared to the returns experienced by shareholders who have invested real dollars in such company's stock. Companies often play the "long-term" card as they seek to persuade other shareholders and proxy advisory firms that their currently serving directors are more worthy to serve on the board than directors proposed by activists, yet seem to forget that such existing directors have already been there for quite a while. It is challenging to justify voting for an incumbent director who has presided over an extended period of underperformance, particularly if other qualified directors proposed by shareholder activists are also up for election.

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5/30/2023

Opinion: Activist Shareholders Threaten Japan’s AGM Season

Financial Times (05/30/23) Lewis, Leo

Every year, the June corporate annual general meeting season (AGM) in Japan stands as a reminder of the delicate equilibrium in which the Tokyo market operates: shareholders are granted immense disruptive powers but have been reliably reluctant to use them, writes Financial Times Asia business editor Leo Lewis. There have been many predictions that this balance might eventually crumble, though it has long held firm. But AGM season 2023, say both companies’ investor relations departments and investors, already feels as if it will be different, writes Lewis. At the most visible end, there are more shareholder activists engaging Japanese companies than ever before, and several of them, such as Elliott, have prominently expanded their Japan teams since 2022. Mizuho Securities and others are forecasting that the season will see Japanese companies confronting a record number of proposals from shareholders. Their approach is also shifting: where previously they issued blunt demands for share buybacks and quick asset sales, many now push for systemic shifts in capital allocation, climate policy and transparency. But a more fundamental challenge is also gathering strength from the traditional end of asset management. This is bound by an increasing list of rules-based mandates to hold companies to account on grounds of board diversity and ESG, and threatens to unleash at least some of that long-underused shareholder power on chief executives who fail to address their governance shortcomings. "Japan’s AGM season has always been eye-catching, often for the wrong reasons," says Lewis. Because such a high proportion of the country’s companies — 2,283 is the current tally — end their financial years at the end of March, June is an obvious time to hold shareholder meetings after the business of full-year reporting and the registering of proposals is done. But this has been taken to extremes. Back in the mid-1990s, 96% of companies held their AGMs on the same day in June. These days, given the intensifying need to appear shareholder-friendly, the season is slightly more spread out: just under 80% of companies hold meetings over seven days at the end of the month. Behind that clustering is a technical fear. Japanese companies do not, by convention, have staggered boards, and in the case of almost all of them, shareholders are called upon to elect the directors, including the chief executive as representative director. In theory, given that any one of these could be ousted by a support rate of below 50%, that means every year’s AGM comes with the notional threat of a total wipeout of a company’s gubernatorial bench. For decades, this theoretical risk was offset in ways that allowed chief executives to sleep easy. Friendly companies formed latticeworks of “allegiant” shareholders who, in combination with docile investor bases, in effect guaranteed that support rates for nominees would arrive in the very comfortable 85% to 95% zone. But companies can now see that changing rapidly, as stewardship obligations force pension funds and life insurers to be less docile and old habits, such as having boards without a decent contingent of independent members, now create vulnerability for CEOs. Those companies whose financial years end in December have already held their annual meetings, and the struggles that some have had with investors now stand as a warning to the thousands of others holding their meetings over the next four weeks. Fujio Mitarai, the chief executive of Canon (CAJPY) and a towering figure in corporate Japan, scraped through with just 50.59% support. Major shareholders, including BlackRock, voted against Mitarai because Canon currently has no female directors and he was held responsible. The top management of retailer Seven & i Holdings (SVNDY) survived more comfortably, but only after a sustained attack from ValueAct Capital and intensive efforts by the company to win over shareholders.

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5/26/2023

ESG Activism Down This Proxy Season, ISS says

Pensions & Investments (05/26/23) Bradford, Hazel

Shareholder activism on environmental, social, and governance (ESG) issues and dissent over executive compensation at U.S. companies are down this proxy season, according to an analysis by ISS Corporate Solutions (ICS) released Friday. With more than 40% of Russell 3,000 companies holding annual meetings in May, "trends evidenced thus far this proxy season suggest waning support for shareholder proposals overall, with median support levels down 5% compared with calendar 2022," Jun Frank, managing director at ICS, said. Of environmental and social shareholder proposals voted on at annual meetings held by May 24, only one environmental proposal, on methane emission disclosure, and three social proposals on diversity and human/labor rights, received majority support. That compares to the same period last year, when five environmentally focused shareholder proposals and seven addressing social issues received majority support, the ICS analysis found. Median support declined across all categories except for proposals blending E&S issues, such as those related to climate lobbying activities and health and safety issues with environmental implications. "When all is said and done, we expect support for shareholder proposals to be down over past years and potentially closer to pre-pandemic norms," Frank said. Between 2020 and 2023 there was a 14% increase in shareholder proposals at annual meetings held between January through May, but ICS attributed that in part to the rise of anti-ESG shareholder resolutions that have grown by more than 400% since 2020. Looking at shareholder support for executive pay at annual meetings through May 17, ICS found less investor dissent than in 2022, when dissent peaked. So far in 2023, there were 43 instances where voting support for executive pay was less than 70%, compared to 72 during the same period in 2022 and 66 in 2021. That suggests less scrutiny from shareholders, and "is also likely indicative of companies positively responding to recent concerns by actively engaging with their shareholder base and incorporating meaningful changes to their compensation programs," said Roy Saliba, ICS managing director.

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5/25/2023

Why Activist Investors Are Going to Have a Busy Year

The Economist (05/25/23)

Activist investor proposals appear at first glance to be on a downward trend this year, but this may be misleading. Many companies are pushing for settlements in the face of new regulations that they fear will favor dissident shareholders. In February, Trian terminated its proxy battle against Disney (DIS) after the entertainment giant unveiled a restructuring plan. Meanwhile, Elliott Management halted plans to nominate directors to Salesforce's (CRM) board in March after the software firm gave a seat to the boss of ValueAct. Activists regard these settlements as victories. Such shareholders view many companies as ripe for managerial shake-ups as the cost of capital appreciates, while also going after bigger game. The first quarter of this year saw a record number of campaigns involving businesses with market capitalizations topping $50 billion, while technology firms accounted for 25% of U.S. campaigns in 2022. The flagging of the pandemic-driven digital explosion gives activists an opening to cut costs or divest unprofitable businesses. Moreover, tech giants' massive market capitalizations let investors leverage large sums without exceeding ownership limits that would trigger disclosures of their stakes before they are ready to launch their campaigns publicly. U.S. investors will also increasingly extend their activism model overseas, with efforts in Asia and Europe building momentum.

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