I’ll start by making a few things clear: I support a clean environment, stopping or slowing climate change, and many other good things. I also believe that corporations should (and many do) consider constituencies other than shareholders and seek to do more than increase shareholder value. There. I’ve gotten that out of my system.
But that doesn’t mean
Lest you think that the summer is a quiet time for those of us in the wacky world of securities and corporate governance, think again. Here’s some of what’s going on:
Legislation
On July 30, the House Financial Services Committee passed 11 bills and sent them to the full House. One of the bills would authorize the SEC to revise the reporting period for 13F disclosures from quarterly to monthly, change the time period to submit such reports, and expand the list of items to be disclosed to include certain derivatives. The issuer and investment communities support these moves, and House passage seems likely, but the Senate is another matter altogether.
Another bill would impact family offices in a number of ways, including limiting the use of the family office exemption from registration as an investment adviser with the SEC to offices with $750 million or less in assets under management; requiring family offices with more than $750 million of assets under management to register with the SEC as “exempt reporting advisers”; and preventing persons who are barred or subject to final orders for conduct constituting fraud, manipulation, or deceit from being associated with a family office.
Continue Reading Summer Doldrums? Not So Much!
I have long been a champion of shareholder engagement. Since as far back as the 1980s, I have believed that companies and investors alike greatly benefit from engagement; I even advocated for engagement by individual directors – a view that generated some strong adverse commentary from those in the corporate community who disagreed with me. It’s therefore extremely gratifying to me that what was a rare and often disparaged occurrence has become the norm. Even prestigious law firms that referred to director-investor meetings as “corporate governance run amok” now embrace the practice.
I also admit that, despite my disagreement with the principles behind say on pay votes, such votes have had the very positive unintended consequence of making engagement commonplace. In fact, there is so much engagement going on that some investors can’t find the time to meet with the companies they own.
So far, so good.
However, I believe that things may be going too far. I refer, specifically, to the new movement to have a “say on climate” vote at every public company’s annual meeting (or, as the corporate community increasingly refers to it, the annual general meeting, or AGM – as opposed to an annual “specific” meeting, I suppose). The vote would be similar to the say on pay vote – advisory, non-binding, and so on. I have not yet heard anything about a second advisory vote to determine how often a say on climate vote would need to be taken, but I would not be surprised to learn that it’s under consideration somewhere.
Continue Reading Say what???
Environmental, Social and Governance considerations (ESG) are expected to play an increasing role in equity pay determinations for executive officers. About 50 percent of S&P 500 companies used ESG metrics in cash-based, short-term incentive compensation plans during 2020. Conversely, only about 4 percent of S&P 500 companies used ESG metrics in long-term equity incentive plans. This should change beginning with 2021 awards due to anticipated SEC-required disclosure of ESG business risks. ISS, Glass Lewis and large investors (e.g., BlackRock, Vanguard) have made calls for more ESG disclosure. Banks increasingly view ESG risks as credit risks. In addition, national media outlets have made the case for executive pay to tie with ESG goals.
In recent years equity awards made to executive officers have been tied to achieving company performance goals. But these performance evaluations are usually linked to relative total shareholder return or financial metrics such as EPS or return on invested capital. As the tide shifts to include ESG metrics, the question now asked is, “how do we set equity awards for executives to help our company attain its ESG goals?”
Continue Reading ESG Considerations for Equity Incentive Plans
A few years ago, a wonderfully outspoken member of the institutional investor community congratulated me on a corporate governance award I’d received. She apologized for not being able to make it to the awards ceremony, referring to it – very aptly, IMHO – as the “nerd prom.”
Well, we’ve progressed from the nerd prom to a nerd war – specifically, the nasty fight over the August 19 Statement on the Purpose of the Corporation, signed by 181 CEO members of The Business Roundtable. The Statement suggested that the shareholder-centric model of the modern American corporation needs to be changed and that “we share a fundamental commitment to all of our stakeholders.” The stakeholders listed in the Statement were customers, employees, suppliers, and the communities in which the companies operate; however, other stakeholders were referred or alluded to, such as the environment. And the final bullet point in the list stated that the signers were committed to:
“Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.”
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