A while back – March 2017, to be exact – I posted a piece entitled “Beware when the legislature is in session”, citing a 19th Century New York Surrogate’s statement that “no man’s life, liberty or property are safe while the legislature is in session.”

It may be time to amend that statement, for Washington seems to be at it regardless of whether the legislature is in session.  A very rough count suggests that there are more than 20 pending bills dealing with securities laws, our capital markets, corporate governance and related matters.  And that does not include other initiatives, such as the President’s August 17 tweet that he had directed the SEC to study whether public companies should report their results on a semi-annual, rather than a quarterly, basis.

Problems with the Approach

I’m not saying that all of the ideas being floated are awful, or even bad.  (One good thing is that our legislators seem to have decided that trying to give every statute a name that can serve as a nifty acronym isn’t worth the effort.)  In fact, some of the ideas merit consideration.  However (you knew there would be a “however”), I have problems with the way in which these bills deal with the topics in question.  (I have problems with some of the ideas, as well, but more on that later.)

  • First, in my experience, far too many legislators do not understand what our securities laws are all about, and some do not want to understand or do not care. I will not cite particular instances of this, but I’ve been surprised several times with the level of ignorance or worse (i.e., cynicism) demonstrated by legislators and their staffs about the matters their proposals address.  At the risk of hearing you say “duh”, this does not lead to good legislation.
  • Second, these bills represent a slapdash approach when what is needed is a comprehensive, holistic one. Even the best of the pending bills and proposals is a band-aid that will create another complication in an already overcrowded field of increasingly counterintuitive and/or contradictory regulations, interpretations, and court decisions.

Problems with the Proposals

As promised (threatened), I also have concerns about a number of the proposals being bruited about, but for the moment I’ll focus on two of them – eliminating quarterly reporting and Senator Warren’s “Accountable Capitalism Act”. Continue Reading Dear Washington: How can we miss you if you don’t go away?

A few weeks ago, I attended the “spring” meeting of the Council of Institutional Investors in Washington (the quotation marks signifying that it didn’t feel like spring – in fact, it snowed one evening).  These meetings are always interesting, in part because over the 15+ years that I’ve been attending CII meetings, their tone has changed from general hostility towards the issuer community to a more selective approach and a general appreciation of engagement.

So what’s on the mind of our institutional owners?  First, an overriding concern with capital structures that limit or eliminate voting rights of “common” shareholders.  CII’s official position is that such structures should be subject to mandatory sunset provisions; that position strikes me as reasonable (particularly as opposed to seeking their outright ban), but it’s too soon to tell whether it will gain traction.

Continue Reading News from the front

When governance nerds hear the term “public employee pension fund”, they may think of CalPERS or CalSTRS, the California giants. However, Florida has its very own State Board of Administration, which manages not only our public employee funds, but also our Hurricane Catastrophe Fund. I’m a big fan of the governance team at the Florida State Board; I don’t always agree with their views, but they are smart and fun and a pleasure to talk to.

The Florida State Board has just published an interesting – and mercifully brief – report on over-boarded directors – i.e., men and women (OK, usually men) who serve on too many boards. The report, entitled Time is Money, is subtitled “The Link Between Over-Boarded Directors and Portfolio Value”, and the following are among its key points: Continue Reading Over-boarding: multitasking by another name (and with predictable results?)

No, I’m not referring to my age (I’m old, but not THAT old).

Rather, I’m referring to the supermajority shareholder votes that ISS has required, and that Glass Lewis now requires, for various matters.  Specifically, for the past several years, ISS policy has looked askance at any company whose say-on-pay proposal garnered less than 70% of the votes cast.  More recently, Glass Lewis has adopted a policy stating that boards should respond to any company proposal, including say-on-pay, that fails to receive at least 80% shareholder approval or any shareholder proposal that receives more than 20% approval.

Putting aside the irony that ISS and Glass Lewis have long railed against supermajority voting requirements imposed by companies, one wonders what the rationale is for upping the ante.  One possible reason is frustration that, despite negative voting recommendations from proxy advisory firms, the overwhelming majority of say-on-pay proposals pass – and by relatively large margins.  However, my hunch is that the real frustration is that companies don’t usually respond to shareholder proposals that don’t pass, and most shareholder proposals don’t pass.

Continue Reading 80 is the new 50

Yes, it’s that time of year again.  Turkey, Black Friday, decking the halls, office parties, and the annual issuance of ISS’s voting policies for the coming year.

To make sure I’m on Santa’s good list, I need to be honest – and, to be honest, the 2018 changes seem rather benign.  In fact, as noted below, ISS hasn’t gone as far as some of its mainstream members in terms of encouraging board diversity and sustainability initiatives.

Here’s a quick rundown on the key changes for 2018:

  • Director Compensation: Director compensation – or at least excessive director compensation – has been looming ever larger as a hot topic in governance.  ISS continues the trend by determining that a two-consecutive-year pattern of excessive director pay will result in an against or withhold vote for directors absent a “compelling” rationale.  Since the policy contemplates a two-year pattern, there will be no negative voting recommendations on this matter until 2019.

Continue Reading Tis the season

Now that I have your attention, you may be disappointed to know that I’m referring to another s-word: “sustainability”.  It’s surely one of the big governance words of 2017.  Investors are pressuring companies to do and say more about it.  Organizations are developing standards – sometimes inconsistent ones – by which to measure companies’ performance in it.  And companies are dealing with it in a growing variety of ways, including through investor engagement and disclosure.

Being a governance and disclosure nerd, I’ve given lots of thought to sustainability in both contexts.  Lately, I’ve come up with two thoughts about it.

Thought 1 Continue Reading The s-word and your investment portfolio

In late July, S&P Dow Jones and FTSE Russell announced that they were changing or proposing to change the standards that govern whether a company is included in their indices.  Although their approaches differ, the changes would effectively bar most companies with differential voting rights from their indices, as follows:

  • In its July 31 announcement, S&P Dow Jones said that companies with multiple share classes will no longer be included in the indices comprising the S&P Composite 1500 – which includes the S&P 500, S&P MidCap 400 and S&P SmallCap 600. There are some exceptions; companies currently in these indices will be grandfathered, as will any newly public company spun off from a company currently included in any of the indices.
  • Five days earlier, FTSE Russell proposed to require more than 5% of a company’s voting rights – across all equity securities, whether or not listed or traded – to be held by “free float” holders to be eligible for inclusion in the FTSE Russell indices.

Continue Reading Class Acts: Stock Indices Bar Differential Voting Rights

back-to-school-954572_1280My last post was a re-posting of Adam Epstein’s great piece on the importance of the proxy statement.  I promised that I would follow up on Adam’s thoughts with some recommendations of my own.  Here goes.

General

  • Manage your proxy statement “real estate” to maximize user-friendliness and create an optimal flow: Think about where things go.  For example, if your company is owned largely by institutions (and perhaps even if it’s not), should you lead off with an endless Q&A about the annual meeting and voting, discussing such exciting topics as the difference between record and beneficial ownership and how to change your vote?  Some of it is required, but consider taking out what’s not required and moving what is required to the back of the book.
  • Use executive summaries: Investors like them, and even the SEC has more or less endorsed their use. Think of it this way – whatever you think of ISS, it does a great job of summarizing your key disclosures, albeit not with your company’s best interests in mind.  Why pass up an opportunity to convey your key disclosures with those interests in mind?

Continue Reading Required reading (Part 2)

 

I recently attended the Winter Meeting of the Council of Institutional Investors and thought you would like to know what the Council and its members are thinking.

The British Library
The British Library

What was NOT discussed – proxy access

First, one dog that didn’t bark was proxy access.  There was virtually no mention of the subject. I can only assume that proxy access has been adopted by a sufficient number of companies that it is no longer controversial or even worth discussing.

Coming to a company near you – majority voting…

What was worth discussing was majority voting in uncontested director elections, and if you are a mid- or small-cap company, you’d be well advised to think about it.  Among other things, the Council sent a letter last year on the subject to the companies in the Russell 3000, and was not encouraged by the responses.  Most large-cap companies have it, and it seems to be inevitable that smaller companies will be pressured to adopt it as well.  Frankly, I don’t think it’s worth fighting over, and early adoption might give a company a leg up on other governance challenges. Continue Reading News from the institutional investor front

It remains to be seen whether the new administration will actually drain the swamp or do away with political correctness, but one hope that some of us have – regardless of our views on the election – is that the SEC may finally get around to some issues that have been on the back burner for years.

One such issue is a long-overdue overhaul of the rules surrounding shareholder proposals, including the submission and resubmission thresholds for proposals under SEC Rule 14a-8.  Many organizations, including the Society for Corporate Governance, have repeatedly urged the SEC to update these rules, which have been in place for many years.  However, the SEC has been reluctant to plunge into the area due to the likely political firestorm that would result.

Now, another organization has jumped in.  At the end of October, the Business Roundtable published “Modernizing the Shareholder Proposal Process”, a rational and well thought-out series of suggestions for bringing shareholder proposals into the 21st Century.

Continue Reading A modest proposal about more modest proposals