A few months ago, I wrote a post addressing the use of artificial intelligence in the boardroom. While the focus of the post was using AI (or not) to draft minutes, I also asked (with apologies for quoting myself), “whether a robot equipped with AI can serve as a director.” At the time, I
In corporate governance, as in so many other areas, artificial intelligence is all the rage. If you read just about anything relating to corporate boards, you’re almost certain to learn that boards are scratching their collective heads to figure out where and how their companies can use AI, how they can best govern the use of AI, and all sorts of related topics. However, while boards may be talking about AI – and possibly even doing something about it – it appears that few, if any, people are talking about the possible use of AI in the boardroom itself.
Maybe this is understandable; after all, boards are rightly concerned about risks and are not known as hotbeds of innovation. However, it’s still surprising that the last major technological innovation impacting boardrooms was the introduction of board portals, which have been around for roughly 20 years.
I suspect that AI will eventually work its way into the boardroom; I can imagine that in a few years AI may routinely enable directors to tweak assumptions underlying management forecasts, check financial statements for compliance with GAAP and SEC rules, and so on. That will pose a variety of legal and policy questions, such as whether directors can avoid responsibility for bad decisions by claiming reliance upon AI and whether a robot equipped with AI can serve as a director.
For the time being, however, I’d like to focus on a narrower question that is beginning to be asked in the nerdy community of corporate secretaries: Can (and should) AI be relied upon to draft board and committee minutes? Some clients have actually asked me similar questions in the hope that they may be able to lighten their workloads by laying off the tedious task of drafting minutes onto the AI programs with which their phones, tablets, and laptops are now equipped. Continue Reading A ROBOT IN THE BOARDROOM? Using AI to Draft Minutes
I recently read an article suggesting that companies need to consider appointing a chief resilience officer. That got me thinking about all the other “chief” positions that pundits may be encouraging companies to create. Here’s a partial list:
| Chief Analytics Officer | Chief Happiness Officer |
| Chief Automation Officer | Chief Inclusion Officer |
| Chief Behavioral Officer | Chief Information Officer |
| Chief |
Spoiler alert – despite the title and the creepy photo, this is not about zombies, vampires, or anything else of a spooky nature. Rather, it’s how we can hopefully make some of the deadwood in our proxy statements meaningful.
I realize that the upcoming
Since the 1980s, Section 102(b)(7) of the Delaware General Corporation Law (the “DGCL”) has enabled Delaware corporations to provide exculpation from breaches of the fiduciary duty of care to directors – but not officers – in certain circumstances. Officers can now come in from the cold, as Section 102(b)(7) has now been amended to provide similar protection for certain officers. Specifically, the amendments, which became effective on August 1, 2022, allow Delaware corporations to provide exculpation from breaches of the duty of care to specified officers in certain circumstances. The new provisions allow a qualifying officer to be exculpated from such claims made directly by stockholders but do not provide relief in connection with other fiduciary duties, derivative actions, or actions brought by a corporation’s board against its officers.
We view this amendment as a major forward step. If your company (or any subsidiary) is a Delaware corporation, you should seriously consider amending its certificate of incorporation to provide this protection. And if you are an officer of a Delaware corporation, you should make sure your board of directors is aware that this protection is available and urge your board to take the steps needed to provide the protection..
Hating lawyers may not have started with Shakespeare, but he didn’t help things when he wrote “The first thing we do, let’s kill all the lawyers” in Henry VI. Any lawyer who’s been practicing law for more than a couple of weeks knows that part of the price of bar admission is having to endure lawyer jokes (most of which aren’t very good) and experiences like having a client say to you at the outset of your first meeting, “just so you know, I don’t like lawyers” or words to that effect.
It’s particularly painful, however, when an attack on our profession comes from one of our own, who also happens to be a member of the Securities and Exchange Commission. I refer to a March 4 speech by Commissioner Allison Herren Lee in which she notes her “deep regard for the ideals of public service that our profession represents” and that her “belief in the ideals of the profession – ideals I know you all share – has only grown stronger with time” but then goes on to castigate corporate lawyers for failing to fulfill our “role…as gatekeepers in the capital markets.” She distinguishes corporate lawyers from litigators – a dubious distinction that suggests we should be less zealous in representing our clients than our litigation colleagues – and says that in passing Section 307 of the Sarbanes-Oxley Act (more on that below) “Congress was concerned…that counsel often acted in the interests of the executives who hired them rather than the company and its shareholders to whom their duty and responsibility is [sic] owed.”
Continue Reading Who needs Shakespeare when you’ve got the SEC?
The Nasdaq Stock Market has developed a reputation for being the hip securities exchange, technologically and otherwise. In many ways, it deserves this reputation. For example:
So it is not particularly surprising that, once again, in August 2021, Nasdaq took center stage and became the first major stock exchange to adopt a board diversity rule for its listed companies.
WHY THIS RULE? WHY NOW?
The answer to the first question is clear. Notwithstanding widespread acknowledgement by corporate America that board diversity leads to greater innovation, smarter decision-making, and improvements to the bottom line, actual board diversity remains elusive. As of 2020, only 20.9% of Fortune 500 board seats were held by White women, and a mere 5.7% were held by Black and Latina women; and while 2021 saw gains of 300% in new directors who are Black and 200% gains in Latino directors, 80% of all Fortune 500 board members are White, and 70% are male.[1] So even though the new rule will not create “instant” diversity, it will create measurable board diversity goals, forcing companies that have given lip service to diversity to act – or to disclose that they have failed to act.
Why now? Personally, I ask, “Why not before?” The answers to those questions, however, are beyond the scope of this blog. For this moment, I am cautiously optimistic that Nasdaq’s new diversity rule can be a catalyst for meaningful change that leads to the bona fide board diversity that corporate America has been incapable of accomplishing thus far.
Continue Reading Nasdaq’s Board Diversity Rule: The “Hip” Exchange Does It Again
Remind me again, what’s Section 162(m)?
In general, Section 162(m) of the Internal Revenue Code provides that a publicly held corporation shall not be allowed a deduction for any “applicable employee remuneration” to any “covered employee” that exceeds $1,000,000. Applicable employee remuneration generally means compensation for services performed. Though the definition has changed over time, “covered employee” originally captured a company’s CEO as of the last day of the taxable year, as well as the next three most highly compensated officers.
Insert the TCJA
The Tax Cuts and Jobs Act of 2017 (the “TCJA”) took the first stab at widening the net used to determine who is a “covered employee.” Specifically, the definition was expanded to include any person who served as CEO or CFO during the taxable year, in addition to the next three most highly compensated officers. Additionally, the definition was expanded to include any individual who was a “covered employee” for any taxable year beginning after December 31, 2016. The TCJA also made other notable changes to Section 162(m), including the elimination of an exception for qualified “performance-based compensation” approved by stockholders. The practical effect of this was to eliminate the need for stockholder votes to approve plans providing for “performance-based” compensation, because the compensation in question would be non-deductible whether or not it was performance-based.
Continue Reading Run for “Covered!” The American Rescue Plan Act casts a wider net on Section 162(m) “Covered Employees”
In the last several days, the SEC has engaged in a skirmish, and possibly an opening battle, against SPACs. A recap follows.
The first shot was fired on March 31, when the Staff of the SEC’s Division of Corporation Finance and the Office of Chief Accountant issued separate public statements about a number of risks and challenges associated with taking private companies public via “deSPAC” transactions.
The CorpFin statement covered a lot of territory, pointing out the following pitfalls, among others, facing companies that go public via a deSPAC. These pitfalls reflect that such companies are subject to rules governing shell companies that do not apply to companies going public through conventional IPOs.
The statement also reminds companies that public issuers are required to maintain accurate books and records as well as internal control on financial reporting – both areas that have been the basis for enforcement actions by the SEC.
Continue Reading Caveat Everybody — The SEC Takes Aim at SPACs
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???