Media Center

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

U.K.'s De La Rue Faces Another Call to Oust Chairman
After Amarin's Clash With Sarissa, CEO Mikhail Hits the Exit
Sachem Head Urges Arconic to Sell Itself
Carl Icahn Blasts Illumina for Nearly Doubling CEO's Pay Despite Steep Drop in Market Value
Korean Fund KCGI Readies Campaign Against DB HiTek
Airbus Pulls up Hard, No Longer Buying 29.9% Stake in Atos-Owned Evidian
Illumina Urges Shareholders to Reject Carl Icahn's Board Nominees as Proxy Fight Heats Up
Illumina Chief's Pay Nearly Doubles Ahead of Clash With Carl Icahn
Enhabit Announces Agreement With Cruiser Capital and Harbour Point Capital
Cellnex Close to Hiring Adviser as TCI Pushes for Change
Several Pitney Bowes Investors to Vote for Hestia Slate in Proxy Battle
Icahn, Illumina Privately Discussed Settlement Before Public Fight
Britain Sets Out Next Steps to Green Its Financial System
Female Board Directors a Must for Listing, Taiwan's FSC Says
Marc Benioff Says He Can Juggle Empathy, Cost Cuts, and Layoffs as He Doubles Down on Efficiency at Salesforce
Boomerang Chief Executives Provide Comfort in Times of Crisis
Investment Stewardship Engagement Priorities
Key Updates to 2023 Proxy Voting Guidelines
Patents and Politics Among Early U.S. Proxy Season Highlights
83% of Asian SMEs Say ESG Is a High Priority, but Only 37% Have Roadmap
Companies Urged to Take Stock of Their Impact on Nature and Related Risks
JB Financial, KT&G Brace for Proxy Fights at Shareholders' Meetings
Opinion: The SEC Sets Its Sights on ESG
Looking Back on Shareholder Activism in Japan in 2022
Opinion: Board Diversity Is Slipping: Here's How to Sustain DEI Progress
Opinion: Hedge Funds Seek New Opportunities in These Tough Times
Women CEOs Reduce Corporate Greenwashing
Larry Fink's 2023 Chairman's Letter To Shareholders
Opinion: Activist Funds Gain Influence, Power
Opinion: The Corporate Battle for the Future of K-Pop

3/31/2023

U.K.'s De La Rue Faces Another Call to Oust Chairman

Reuters (03/31/23) Anilkumar, Radhika; Shabong, Yadarisa

Crystal Amber Fund (CRS) is again attempting to remove U.K. banknote printer De La Rue's (DLAR) chairman after failing to do so last year, hoping a shake-up will prop up its performance and share price. Crystal Amber is the company's third-largest shareholder with a roughly 9.8% interest. On Friday it called for a shareholder meeting to oust Chairman Kevin Loosemore and replace him with Pepyn Dinandt, currently an executive at automotive supplier Eberspächer Group. De La Rue said it was weighing the requisition notice's contents and legality. The company has been facing declining profits and less demand for currency, warning in November of "material uncertainty that may cast significant doubt" on its future, including breaching certain debt agreements without key contracts or major cost reductions. De La Rue's shares have seen about a third of their value erode so far this year, after losing nearly half in 2022. "Crystal Amber believes that unless it takes immediate action, De La Rue's audit report for the year to March 2023 is likely to include a material uncertainty going concern qualification," the shareholder stated. The fund added that this would enormously affect the company's ability to tender for new contracts and keep current ones. Crystal Amber urged Loosemore's resignation in October, yet most shareholders voted that he stay on during a meeting in December. De La Rue CFO Rob Harding is scheduled to exit the company later this year to join PayPoint (PAY).

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3/31/2023

Sachem Head Urges Arconic to Sell Itself

Reuters (03/31/23) Herbst-Bayliss, Svea; Oguh, Chibuike

Sachem Head Capital Management has built a stake in Arconic Corp. (ARNC) and has been urging the U.S. aluminum sheet maker to go through with a process it has launched to sell itself, according to sources. Arconic has been in talks with private equity firms, including Apollo Global Management Inc. (APO), about selling itself, the sources said, at a time when securing debt financing for leveraged buyouts has become difficult following the recent unease in the banking sector. Apollo has so far indicated it is willing to pay $27 to $28 a share for Arconic, one of the sources noted, close to where Arconic's shares currently are trading. Sachem Head's call for a sale would boost the pressure on Arconic to successfully complete the negotiations. Arconic shares have climbed more than 20% since the Wall Street Journal reported on Feb. 28 that the Pittsburgh, Pa.-based company was working with investment banks on a sale process. Arconic currently has a market value of $2.6 billion and had debt as of the end of December of $1.6 billion. Sachem Head, run by Scott Ferguson, established its position in Arconic in the last weeks, the sources said. The position's size could not be ascertained. Ferguson has told Arconic's management that he would like the company to sell itself and would back a sales process, the sources said. Arconic also tried to negotiate a deal in 2019 with Apollo, but nothing materialized. In 2020, it split into two companies: Howmet Aerospace Inc. (HWM), a provider of jet engine components and aerospace fastening systems, and Arconic, a maker of aluminum sheet, plate, and extrusions for the aerospace and construction industries.

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3/31/2023

Korean Fund KCGI Readies Campaign Against DB HiTek

Pulse - Maeil Business News Korea (03/31/2023)

South Korean activist fund KCGI Co. has bought a 7.05% stake in chip foundry company DB HiTek Co., launching a campaign against the firm. The fund said the stake was obtained through Caropy Holdings Ltd. for the purpose of “management influence.” DB HiTek shares passed a limit of 10% to 67,200 won ($51.8) in after-hours trading on Thursday, closing at 61,100 won. KCGI said its conviction that shares were undervalued motivated its investment. “DB HiTek has maintained an outstanding market position in the global foundry market for several years based on its process technology specializing in analog chips,” the fund declared. “The company's corporate value is extremely undervalued given its growth potential and competitiveness based on the solid market position.” KCGI estimated that the price-to-earnings ratio is 3.5 times and the corporate value divided by operating profit before deducting corporate tax, interest, and depreciation is 1.3 times. The fund added that DB HiTek did not talk to shareholders about major decisions such as a spinoff, which put it at odds with minority investors. “The decision should have been made after gaining Majority of Minority approval,” KCGI said. DB HiTek passed a plan to divest its “Fabless” design business and transition to a foundry-dedicated company at the shareholders meeting. KCGI also emphasized that the company's goal of a share buyback worth 100 billion won must include treasury share retirement, demanding safeguards and oversight through an independent board; the fund proposed the launch of concentrated voting to exercise shareholder rights. This invites scrutiny as to whether KCGI's DB HiTek stake will impact DB Group's governance framework. DB Group holding company DB Inc. is DB HiTek's biggest investor, though its position is 12.39%. Its full stake is just 17.78%, even accounting for shares of those in special relationships. Analysts thus point out that a management rights dispute over director appointment, among other things, may come when KCGI partners with minority shareholders. DB HiTek shares have spiked 64% this year alone, and the stock is likely to appreciate further upon escalating rivalry to acquire more shares in the company.

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3/30/2023

Airbus Pulls up Hard, No Longer Buying 29.9% Stake in Atos-Owned Evidian

The Register (03/30/23) Kunert, Paul

Airbus has exited from talks to purchase nearly a third of Evidian following significant public pressure from TCI Fund Management's Christopher Hohn. Hohn asserted that the proposed transaction would essentially be a bailout of Evidian's parent company, Atos. Airbus said in a note to investors, "After careful consideration, Airbus SE has come to the conclusion that the potential acquisition of a minority stake of 29.9% in Evidian does not meet the company's objectives in the current context and under the current structure." Evidian oversees such segments as cloud operations, high performance computing, digital transformation, and security, and employs 59,000 people. Evidian generated more than $5.12 billion in sales in 2021. Later this year, it will be spun out of Atos to float on the Paris Exchange, under a plan that was conceived of in summer 2022. Airbus said on Feb. 16 it was in discussions to invest in the unit, citing Evidian's security and digital expertise. This appeared to be illogical to TCI Fund Management, which owns a 4% stake in Airbus valued at €4 billion. Hohn urged Airbus management to "immediately terminate negotiations" because investment "would be stranded capital and an extremely inefficient use of shareholder funds." In an open letter, Hohn wrote, "The transaction appears to be a bailout of Atos, a company that is burdened with unsustainable levels of debt and other liabilities." Airbus' decision leaves Atos without the "anchor shareholder" that Atos Chairman Bertrand Meunier was looking forward to. Airbus said it will continue to discuss "other potential options" with Atos and "pursue the work on the long term strategic and technological partnership...which has the potential to create significant value for both companies." The end of negotiations adversely affected Atos' share price, which fell nearly 17%. The partitioning of Atos is on track to proceed, with the other half—referred to by management as the Tech Foundation Company—overseeing datacenter, hosting, digital workplace, unified communications, and business process outsourcing. This entity has 49,000 staff members and generated $5.65 billion in sales in 2021. It is currently downsizing, and was seen as the least appealing part of the organization. Atos will need to find alternative funding to help pay for its costly internal transformation.

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3/30/2023

Illumina Urges Shareholders to Reject Carl Icahn's Board Nominees as Proxy Fight Heats Up

CNBC (03/30/23) Constantino, Annika Kim

Illumina (ILMN) filed a preliminary proxy statement on Thursday advising shareholders to reject Carl Icahn's three board candidates at this year's annual meeting, warning they would "threaten the progress" of the firm's core business. "Carl Icahn's involvement with Illumina risks the long-term success of the Company, and his director nominees bring no relevant skills to the Board of Directors," declared the DNA sequencing company. Illumina said shareholders should toss any proxy card from Icahn or his affiliate entities, asking them to support its proposed board. The company pledged to disclose more information about "the strength of our Board and management team, our strategy to deliver shareholder value—with innovation at its core—and the potential for Mr. Icahn's associate nominees to damage that strategy." Icahn controls a 1.4% position in Illumina, and is lobbying the company to unwind its $7.1 billion merger with cancer test developer Grail, which he previously called "a new low in corporate governance." Illumina said Icahn is not a long-term investor and did not engage with the company before demanding seats. It added that it "moved quickly and deliberately" to meet with him, interview his candidates in good faith, and consider potential alternatives to a proxy battle. Icahn reportedly was "unwilling to compromise," demanding that the board add his nominees without shareholder input. "It has become abundantly clear that neither Mr. Icahn, nor his three associate nominees—Jesse Lynn, Andrew Teno, or Vincent Intrieri—understand Illumina's business or Grail and the associated regulatory processes," Illumina stated. Company shares were relatively flat following the announcement, while its market cap has decreased from about $75 billion in August 2021 to roughly $35 billion now.

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3/30/2023

Several Pitney Bowes Investors to Vote for Hestia Slate in Proxy Battle

Reuters (03/30/23) Herbst-Bayliss, Svea

Four large investors in Pitney Bowes (PBI) told Reuters they will vote for Hestia Capital's director candidates as the fund campaigns to oust the shipping and mailing company's long-time chief executive and overhaul its business strategy. Hestia, which owns an 8.4% stake in Pitney Bowes, has nominated five director candidates, including its chief investment officer, Kurt Wolf. The company's board will have nine members after the annual meeting on May 9. Park Circle Investors, Anqua Management, DOMO Capital Management, and the family office of former Third Point executive Bradley Radoff said they will back Hestia's nominees, signaling growing frustration with the way the company has been managed. “Pitney Bowes is really messed up,” said Jeff Legum, who runs Park Circle Investors and owns 2.8 million shares. “The CEO needs to go because he is a hindrance to moving ahead,” said Legum, who purchased his stake in early 2023 because he expects the stock price to climb if the company is managed better. Half a dozen investors have now publicly criticized Pitney Bowes for what they called the company's poor execution in the e-commerce segment, excessive debt, overly high corporate costs, and the chief executive officer's more than $66 million in pay. Hestia wants a new board to explore alternative strategies for the company's global e-commerce segment and focus on cash-generating segments like Presort Services, its mail aggregation business, and SendTech Solutions, its postage meter business. Jamie Zimmerman, who runs Anqua Management's Litespeed Master Fund, said the company has opportunities to make money. There is “unrealized value here, not just in the underperforming global e-commerce segment but also in the original SendTech business where opportunities have been underexploited for some time,” she said. Her firm will vote for Hestia's nominees. “The incumbents have blamed everyone and everything other than themselves and have offered no plan or path to value creation,” said Radoff. “I believe enough is enough and significant change is warranted.”

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3/30/2023

Britain Sets Out Next Steps to Green Its Financial System

Reuters (03/30/23) Jones, Huw

The U.K. finance ministry issued its Green Finance Strategy on March 30 with the aim of becoming the world's first net-zero aligned financial center, proposing measures to stamp out so-called greenwashing in financial markets and channel cash into sustainable projects. The ministry said, "We will ensure market participants have the information and tools they need to align to our climate and nature goals." Regulators want more transparency on ratings to help combat greenwashing, or inflated sustainability credentials. The sector is already developing an ESG Data and Ratings Code of Conduct on best practice. Later this year, Britain will hold a public consultation on a taxonomy—a guide for investors on what constitutes sustainable investments—after the government paused work earlier this year to learn lessons from the European Union's taxonomy. The ministry said, "This will support the quality of standards, labels, and disclosures used in the industry for green finance activity. The government proposes that nuclear—as a key technology within our pathways to reach net zero—will be included within the U.K.'s Green Taxonomy, subject to consultation." PricewaterhouseCoopers said the U.K. government has adopted a voluntary taxonomy at least for the first two years, rowing back on a previous commitment to a mandatory system. PwC UK Sustainability Partner David Croker added, "We'll need to see the details of what is consulted on later this year, but a voluntary approach could result in some U.K. companies aligning to the EU taxonomy, or not complying with the taxonomy at all."

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3/30/2023

Female Board Directors a Must for Listing, Taiwan's FSC Says

Taipei Times (03/30/23) Shih-ching, Kao

Taiwan's Financial Supervisory Commission (FSC) this week said that companies planning initial public offerings (IPOs) must have at least one woman on their board to increase gender equality among listed firms. A dozen companies planning IPOs on the Taiwan Stock Exchange (TWSE) and the Taipei Exchange (TPEX) would be impacted this year, Securities and Futures Bureau Deputy Director Sam Chang said at a news conference. Six out of 32 firms intending to list on the TWSE and five out of 24 seeking to debut their shares on the TPEX do not have female directors, TWSE president Chien Lih-chung and TPEX chief executive officer Edith Lee said, adding that some companies are making contingency plans to meet the new requirement. The TWSE and TPEX are weighing giving firms time to install female directors before the end of 2023, the commission said. Listed companies scheduled to hold board elections in 2024 also must have at least one female director, Chang said. Currently, 497 listed companies, or 28% of the total, do not have female directors, he noted. Because 163 companies intend to hold board elections next year, they must comply with this new requirement, he said. Starting in 2025, listed firms that do not meet the requirement that one-third of their board must be female will have to explain why and show improvement plans, he said. "Women joining the board has become the international trend, which is crucial to promote diversity and corporate governance," he said. Asia is lagging behind Europe when it comes to female representation on boards, Chang said. Taiwan would be the third nation in Asia making female board members mandatory, after Hong Kong and Malaysia, he said. South Korea requires only companies with assets of more than than 2 trillion won (US$1.5 billion) to appoint one female director, he noted.

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3/30/2023

Marc Benioff Says He Can Juggle Empathy, Cost Cuts, and Layoffs as He Doubles Down on Efficiency at Salesforce

Fortune (03/30/23) Lev-Ram, Michal

Salesforce (CRM) CEO and cofounder Marc Benioff in recent months has been engaged by activist investors as a result of his costly acquisitions. The enterprise software company laid off roughly 8,000 employees in January, and among those who remained, many complained about the company's false culture. Benioff says, "I'm willing to take the bullets and the cuts and the vilification. That’s what you have to do as CEO, especially through difficult times." In early March, Salesforce released its most recent quarterly results, beating analyst estimates and making better-than-expected projections for its next fiscal year. Revenue in the company's last quarter was up 14% year-over-year while adjusted margins (excluding things like $828 million in restructuring charges) rose to 29.2%, the highest in its 24-year history. Nevertheless, activists continue to pressure Benioff to keep raising profits as well as demonstrate he can set up a feasible succession plan. Benioff has also become a target of some conservative politicians who are anti-ESG. At present, Salesforce's major activist shareholders have not been critical of the company's diversity programs, nor Benioff's goal to plant 1 trillion trees by 2030. However, they have already compelled Salesforce to appoint three new directors to its board, which has the power to vote Benioff out if they are not satisfied with him. On March 27, Salesforce and one of its most vocal activist shareholders, Elliott Investment Management, issued a joint statement, with Elliott asserting it was content with the company's strengthened commitment to "profitable growth," and would halt efforts to nominate its own slate of director nominations. Regarding the impact of activist investors, Benioff noted, "Their primary focus is to make money, and that's what they're doing."

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3/31/2023

Boomerang Chief Executives Provide Comfort in Times of Crisis

Financial Times (03/31/23) Raval, Anjli; Smyth, Jamie

In recent years, several companies have had former CEOs return to the role, with UBS (UBS) recently announcing that Sergio Ermotti would return to the Swiss bank to oversee the integration of domestic rival Credit Suisse (CS). Other so-called boomerang CEOs are Bob Iger at Disney (DIS) and Howard Schultz at Starbucks (SBUX). The hope is that they can bring stability to their companies during a time of chaos, as they understand the business and corporate culture and are known to the board, top executives, and shareholders. Billionaire investor Carl Icahn recently called on Illumina (ILMN) to bring former CEO Jay Flatley back to the U.S. biotech company. "I spoke to a number of big shareholders in Illumina and most of them like him and say he did a great job in the past. And we need someone who can do a great job right now," Icahn said. "When you have problems it is very hard to find somebody to lead a company, which is why you often look back to see who did it well in the past." However, University of North Carolina's Chris Bingham and colleagues studied a sample of 6,429 CEO tenures at S&P Composite 1500 companies from 1992 to 2017 and found that stock performance was 10% lower at the 167 firms led by reappointed leaders than at their counterparts, especially when the returning CEO was a company founder. "Boards want someone who can hit the ground running. They often don't have a lot of time and there is a crisis. This is often the logic. Why shake things up, this is someone that has dealt with crises in the past and can deal with the current ones. This is especially helpful for investors who are looking for reassurance. This is what is happening at UBS," said Bingham. However, one headhunter of top boardroom roles said, "When a successor fails, the board often thinks 'let's bring back the former CEO,' but they probably should think, 'shouldn't we bring in someone else.'"

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3/30/2023

Patents and Politics Among Early U.S. Proxy Season Highlights

Corporate Secretary (03/30/23) Maiden, Ben

The U.S. proxy season for ESG this year is again expected to be noteworthy, with shareholder proposals focusing on leading pharmaceutical companies and resolutions targeting corporate spending on political activities. Prior to this year’s AGMs, the Interfaith Center on Corporate Responsibility (ICCR) arranged the filing of proposals with nine pharmaceutical companies about their use of intellectual property: AbbVie (ABBV), Amgen (AMGN), Bristol Myers Squibb (BMY), Eli Lilly and Company (LLY), Gilead Sciences (GILD), Johnson & Johnson (JNJ), Merck & Co. (MRK), Pfizer (PFE), and Regeneron Pharmaceuticals (REGN). In each instance, ICCR members requested companies' boards "to establish and report on a process by which the impact of extended patent exclusivities on product access would be considered in deciding whether to apply for secondary and tertiary patents. Secondary and tertiary patents are patents applied for after the main active ingredient/molecule patent(s) and which relate to the product." ICCR members are worried about "patent thickets" that comprise several "secondary patents covering the formulations, dosing, or methods of using, administering, or manufacturing a drug" granted after the drug's primary patent has been granted. The supporting statements point out that "[a]ccess to medicines, especially costly specialty drugs, is the subject of consistent and widespread public debate in the U.S." They cited a 2021 Rand Corporation analysis indicating that U.S. prices for branded drugs were nearly 3.5-fold higher than those in 32 other member countries of the Organisation for Economic Co-operation & Development. The Inflation Reduction Act gives the Biden administration the authority to negotiate certain drug prices, and states have taken steps such as introducing drug-price transparency legislation and Medicaid purchasing programs. ICCR has been reaching out to pharmaceutical companies regarding drug accessibility since the 1970s, but the proposals filed with the nine companies are new for 2023. Meg Jones-Monteiro, senior director for health equity at ICCR, notes there have been congressional hearings on drug prices and that legislation is being prepared, in some cases with bipartisan support. Amid public and political focus on the issue, "this is the right time to file," says Jones-Monteiro. Meanwhile, the companies have primarily attempted to gain SEC no-action relief for excluding the proposals from their proxy statements—and have largely been unsuccessful. There have also been some concessions before voting commences.

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3/28/2023

83% of Asian SMEs Say ESG Is a High Priority, but Only 37% Have Roadmap

Mint (03/28/23) Whye, Lee Kah

A recent report by Bloomberg Media Studios, in partnership with southeast Asian bank DBS (DBSDY), estimated that 85% of medium-sized and 75% of small companies cited environmental, social, and corporate governance (ESG) as a high priority, but only 37% have a clear roadmap on how to reach their targets. The report included the findings of an August 2022 survey involving 800 SMEs (small and medium-sized enterprises) across six markets in Asia—Indonesia, Singapore, Taiwan, Hong Kong, India, and China. The study involved more than 937 decision-makers in such sectors as agriculture, power, mobility, F&B/hospitality, and real estate. The report suggested that overall, business leaders were optimistic about sustainability, with more that eight in 10 concurring that their company's operations should focus on safeguarding the environment and they should include sustainability values when choosing investment projects. On average, Asian companies that regarded ESG as a high priority set aside 18% of their budget for ESG initiatives, potentially rising to 19.8% within the next three years. The bulk of those initiatives were geared toward environmental projects. Decision makers cited such key focus areas as waste management, climate change, and carbon footprint, according to the study. SMEs also cited compliance with regulations, attracting talent, boosting revenue, pleasing stakeholders, and doing the right thing as leading motivators to embrace ESG, the survey found. Respondents cited such barriers to ESG adoption as unclear reporting standards and financial concerns. More than one-third of SMEs mentioned such challenges as return on investment, cost of deployment, and meeting growth targets. Inadequate clarity on ESG standards also was cited as an obstacle. The report indicated that most SMEs are serious about ESG and intend to make it a core part of their business, but many are in the early stages. Most SMEs prioritized initiatives that might strengthen their bottom line and those that can be immediately implemented.

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3/28/2023

Companies Urged to Take Stock of Their Impact on Nature and Related Risks

Wall Street Journal Professional (03/28/23) Kirby, Joshua

According to the latest draft framework published by the Taskforce on Nature-Related Financial Disclosures, companies should report in more detail how their operations impact the natural world, which businesses should consider as core to their business. The draft framework offers businesses a way to report on deforestation, pollution, water stress, and overfarming concerns. The final version will be published in September. Tony Goldner, TNFD's Executive Director, said the depletion of resources and damage to rivers and forests should be seen as integral to firms' operations, and not merely a matter of corporate responsibility. He added, "We used to think of nature as an endless supplier of resources into our business practices. We're trying to shift the conversation around the nature of the relationship between nature and business." Kat Bruce, Founder and Director of environmental-DNA startup NatureMetrics, said, "Creating a baseline on the state of nature in ... priority areas and then ongoing monitoring to track progress over time is key. We also need to focus on how effective company actions are to mitigate risks." The World Economic Forum estimated that about $44 trillion of global economic value is moderately or highly dependent on nature, and the World Bank said the collapse of natural systems could wipe $2.7 trillion a year from the global economy by 2030. Goldner said companies and shareholders should pay more attention to the material risk of natural degradation. The draft framework covers three areas that should be assessed by large companies and financial institutions: the use of land, freshwater, and oceans; pollution and pollution removal; and resource use and replenishment. The framework highlights the potential use of bidirectional metrics, meaning both positive and negative effects. A fourth indicator on climate change is covered by a separate framework set out by the Taskforce on Climate-Related Financial Disclosures, or TCFD. The TNFD's framework aims to help businesses align their reporting and actions to global policy goals, and it includes sector-specific guidance for areas including agriculture, mining, energy, and financial services.

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3/27/2023

Looking Back on Shareholder Activism in Japan in 2022

Lexology (03/27/23) Matsumoto, Wataru

Last year, shareholder activism in Japan was somewhat more subdued compared to 2021, but continued to be a key topic in the country' s legal and corporate arenas. The Supreme Court in 2022 ruled on the contingency poison pill which Mitsuboshi Co., Ltd., a maker of electric wires and synthetic resin products, introduced and exercised against a group of shareholders, including Adage Capital Management. The case marks the first in Japan where a contingency poison pill was introduced against "wolfpack tactics," where a group of shareholders increases its shares with the collective purpose of making a proposal to management, without disclosing they are acting together. The Supreme Court and the lower courts all ruled in favor of the plaintiffs who sought an injunction of the poison pill defense. The court determined that the plan introduced by the company was unreasonable because of the wide discretion the company had in deciding what "concerted action" consists of, and what actions the investors could take to withdraw from such concerted action. Additional decisions are necessary before a general principle can be drawn. Another innovation of Mitsuboshi was that the court approved the injunction even though the company consulted the independent committee, received approval in a voluntary-held shareholders’ meeting, and provided a mechanism to mitigate the disadvantage of the investors suffering from exercise of the contingency poison pill. Generally, these three factors were deemed to be essential in determining the validity of poison pills. The new ruling in Mitsuboshi has made it more challenging to assess how Japanese companies can introduce a legally valid contingency poison pill. Meanwhile, in the shareholders' meetings held in the period from September 2021 to June 2022, a total of 96 listed companies received shareholder proposals, of which 47 companies (approximately 49%) received proposals submitted by activist shareholders. These figures are the highest ever with a steep rise from 2021, when 65 companies received shareholder proposals, 24 of which were from activist shareholders. The circumstances under which proposals by activist shareholders have been accepted in shareholders’ meetings are very limited (although there are some cases where the company proposals were amended such that they substantially reflected the activist proposals), but their presence in the Japanese capital market has steadily increased over the years. Japanese companies have traditionally not approved directors dispatched from activist shareholders, but the practice is slowly changing. For instance, Toshiba Corp. (TOSYY), which is in the process of going private, approved two senior executives of Farallon Capital Management and Elliott Management as its external directors.

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3/26/2023

Opinion: Board Diversity Is Slipping: Here's How to Sustain DEI Progress

Forbes (03/26/23) Post, Corinne

Corinne Post cites the latest report from Heidrick & Struggles indicating that enthusiasm for appointing women to boards is waning, with females representing a smaller segment of new board members at U.S. firms this year compared to a few years ago, while boards are also appointing fewer Black women. "Women's representation on boards has stalled, hovering around 30% for a few years now," she writes. "Easy fixes, like expanding a board's size to accommodate more women or fast-tracking a few women into high visibility roles, may have helped boost the numbers in the short term. But they could also be stifling progress and feeding opposition." Groups criticizing boards' diversity, equality, and inclusion initiatives as distractions that are bad for the bottom line are increasingly opposing them. "Pushing back against these efforts, President Biden just vetoed legislation from Congress that would prevent pension fund managers from considering factors like a firm's board diversity in their investment decisions," Post notes. She further contends: "Boards give themselves too few opportunities to refresh their skills and improve diversity. They tend to replace their directors infrequently. Only about 10% of directors appointed each year are new directors, according to a recent Conference Board research project." The addition of seats in response to pressure to appoint more women can have unintended effects, including greater challenges to communication and collaboration. "It also does not serve the women appointees, who may be relegated to less influential roles if they are seen as appointed primarily to satisfy diversity requirements," Post writes. "Directors are also increasingly saying that: 'Board diversity results in the nomination of additional unneeded candidates,' a PWC survey found." Post argues that boards that continuously assess their needs and compare them to directors' qualities have a better chance of improving their demographic diversity and adapting their cumulative board capabilities without needlessly adding seats. "Firms claim there are not enough qualified women for board roles but haven't sufficiently leveled the path to C-suite roles, especially for women of color," she elaborates. "Executive experience is a prerequisite for many board roles. More and more board seats are going to directors with CEO or CFO experience, the Heidrick & Struggles report shows. However, only 26% of C-suite executives are women, according to a 2022 McKinsey & Company report. Men are promoted more quickly at all rungs of the corporate ladder. They benefit from receiving more of the assignments, mentoring, and sponsorship that lead to promotions." According to a report from researchers at IE business school in Madrid and the University of Pennsylvania, some Fortune 500 companies promote women to executive positions faster than men with similar relevant skills until they have about as many women in those roles as their peers, then stop once public scrutiny is off them. "Accelerating the promotion of a few women to executive roles is a temporary solution to gender disparity in the C-Suite. A more sustainable approach should address structural causes of the gender imbalance, like work culture and promotion barriers," Post concludes.

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3/23/2023

Opinion: Hedge Funds Seek New Opportunities in These Tough Times

Bloomberg (03/23/23) Trivedi, Anjani

South Korea may be a potential new opportunity for activist investors, where firms like Hyundai Glovis Co., Korea Zinc Co., and GS Holdings Corp. have raised dividends, boosted buybacks, or updated their shareholder return policies. Authorities are now concentrating on improving corporate governance as the so-called Korea discount lingers, referring to large, intermeshed conglomerates that have resulted in low stock market valuations. Local investors are now taking actions that make the field more suitable for foreign hedge funds. Past attempts in South Korea have seen mixed results, such as Paul Singer’s Elliott Management Corp. that focused on the groups behind Samsung Electronics Co. and Hyundai Motor Co. (HYMTF). Efforts to realize value for shareholders led to modest improvements, but some suggestions were completely denied and capital increases ignored; legal issues also arose. Companies in Korea have tended to set aside more of their returns for research and development and capital expenditures — nearly 85% of the total — compared to their counterparts in the region, Goldman Sachs Group says. However, as policymakers apply pressure, companies are poised to be affected by a more empowered investor base. In 2022, Korea's Financial Services Commission unveiled safeguards for general investors in public offerings of subsidiaries, or spinoffs. The commission also updated guidelines to require companies to "actively explain" details and clarify boards' decisions on internal transactions and self-dealing. The Korea Commercial Code was revised in 2021 to protect minority shareholders. No doubt, disclosure practices need to be improved, but refining and executing current rules will go a long way. A study that looked at more than 1,000 campaigns from 2008 to 2020 found that activists can help make big improvements to companies' operating performance when they focus on cost-cutting and asset divestitures. Some were able to enhance profitability without reducing research and development budgets. Korea's industrials and consumer sectors look appealing because compared to their international peers, companies trade at the steepest of discounts — almost 70% or greater on a forward price-to-book basis, according to Goldman Sachs.

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3/23/2023

Women CEOs Reduce Corporate Greenwashing

Mirage News (03/23/23)

Researchers say companies with a gender diverse board of directors are more likely to be straightforward and accessible about their environmental, social, and governance (ESG) performance. Researchers from the University of Portsmouth, Brunel University, and Loughborough University examined 3,902 firms from 29 countries over a period of 14 years. They focused on ESG decoupling data, which refers to the gap between what firms disclose about their ESG practices, and their actual performance. The study indicated that companies with more female corporate leaders were less likely to exaggerate how positive their environmental impact is—a process known as greenwashing. This relationship is also more noticeable in firms operating in controversial industry sectors. ESG decoupling is a major issue in the current corporate landscape, with many firms misrepresenting their actual ESG performance in their disclosures. About 21% of firms in the study are from countries that have a mandatory board gender diversity law, while the remaining 79% are from countries with no quotas for female directors. Dr. Ahmed Aboud, from the University of Portsmouth's School of Accounting, Economics and Finance, said: "ESG decoupling is a major issue in the current corporate landscape, with many firms misrepresenting their actual ESG performance in their disclosures. Our study supports existing theories that women directors are crucial players in preventing this, as they are more likely to speak out against unethical behavior, and support environmentally conscious decisions." The researchers also assessed the role of religiosity in ESG decoupling. They found the impact of board gender diversity on ESG decoupling is stronger for firms located in countries with a low level of religious beliefs. Yasser Eliwa from the School of Business and Economics at Loughborough University observed: "This finding is consistent with other studies which suggest religious differences among countries can influence corporate decisions. Countries with higher levels of religiosity tend to adopt views supporting traditional gender roles between men and women, and as a result see female directors being less influential in their roles." The paper, published in Business Strategy and the Environment, concluded that ESG laws and regulations need to go further to be effective at minimizing greenwashing. The paper recommends further research to examine the effects of "hard law" and "soft law"; quotas on the relationship between board gender diversity and ESG decoupling; and evaluating other aspects of board diversity such as age, ethnicity, nationality, financial know-how, and industry know-how.

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3/21/2023

Opinion: Activist Funds Gain Influence, Power

Korea Times (03/21/23) Yong-bae, Jeon

Jeon Yong-bae, a professor at the University of Maryland Global Campus, attributes the battle between Kakao Entertainment and HYBE to acquire SM Entertainment to Align Partners, a local fund that acquired SM shares and pressured the company to increase shareholder value by improving its governance structures. "When a stake competition begins, demand for stocks increases, and individuals seeking short-term profits join in, causing the stock price to rise sharply in a short period of time. In the case of SM, the stock price has risen more than 70% from the 70,000 won ($53) range at the beginning of the year to the 120,000 won range recently. Align and individual investors that have joined the battle are gaining significant profits through this investment," said Jeon. He cites moves by investors in other South Korean companies, including Osstem Implant, which was acquired this year by a private equity consortium of MBK Partners and Unison Capital through a public tender offer of Osstem's shares. "Currently, there are dozens of funds active in the Korean stock market, and they generally [engage] companies with low stock prices but excellent long-term prospects, low ownership ratios of major shareholders, holdings of real estate or cash assets and highly profitable subsidiaries," Jeon said. To avoid engagement, he noted that "companies need to keep enhancing their transparency and pursue shareholder-friendly policies to increase shareholder value. Companies should pay a certain level of dividends to shareholders every year and defend against excessive stock price declines through stock buybacks or active corporate promotion. Transactions between subsidiaries or affiliates should be conducted transparently. When management and shareholders cooperate to create a healthy corporate environment, a company can grow and its stock prices can also rise steadily, which will be a win-win for all stakeholders."

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3/17/2023

Opinion: The Corporate Battle for the Future of K-Pop

Korea Economic Institute (03/17/23) Park, S. Nathan

Washington, D.C.-based attorney S. Nathan Park calls Align Partners Capital Management's campaign at SM Entertainment (SME) "one of the most exciting corporate drama[s] in recent memory...in South Korea's business world." After acquiring a 1.1% stake in SME, Align alleged that founder Lee Soo-man, the largest shareholder with an 18.6% stake, "caused SME to enter into a dubious insider contract with LIKE Production, an entity controlled entirely by Lee, under which LIKE would receive 3% to 6% of SME’s revenue, or more than one-third of SME’s profits," Park said. In March 2022, Align succeed in getting an auditor appointed on the SME board. scored an early victory in March 2022, when the hedge fund successfully appointed an auditor on the SME board. Park noted that the hedge fund "steadily grew its influence within the company's governance; in October 2022, SME canceled some of its contracts with LIKE." He adds that "in early February, SME announced that it would issue a new round of shares, most of which would be purchased by Kakao, one of South Korea's largest tech companies." Kakao became SME's second largest shareholder when it acquired a 9.05% stake, which Park said "significantly weaken[ed] Lee Soo-man's hold over the company." This prompted a lawsuit from Lee challenging the new stock issuance for diluting the value of existing shares, after which he sold 14.8% of his shares to HYBE, with an option to buy Lee's remaining 3.66% stake in SME. "The proxy battle over SME was a showcase for the emerging shareholder activism in South Korea," said Park. "Gradual reforms in favor of shareholder democracy have allowed room for an activist fund such as Align to mount a meaningful challenge. Align's campaign was clearly beneficial for SME shareholders: in addition to clearing the dubious contracts that drained the company’s profit to Lee's personal bank account, the activist campaign resulted in dueling and highly lucrative offers [from HYBE and Kakao] for stakes in the company that more than doubled SME's share price in just two months since mid-January."

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