Corporate Governance Research and Resources

Summary Regulation is a fundamental economic concept. It triggers heated political debates, and it is also constantly on the minds of business owners, who cite regulation as a major factor that affects capital structure, employment, and innovation. Despite its importance, there is surprisingly little research on the economics of regulation. Of course, many studies focus […] Read more

This press release announces settled charges brought by the SEC against GTT Communications, Inc., a multinational telecommunications and internet service provider, for failure to disclose material information about “unsupported adjustments of more than $35 million” that had the effect of reducing COR, i.e., cost of revenue, and increasing reported operating income by at least 15% in three quarters from 2019 through 2020. According to the Order, in 2017 and 2018, GTT rapidly expanded its business through multiple acquisitions, but had difficulty absorbing and integrating the operations of the acquired, sometimes distressed, companies, especially with regard to accounting and controls.  As a result, GTT was never able to reconcile data from two critical operating systems used to determine COR, ultimately leading to data integrity issues in its financial statements. In an attempt to achieve some consistency between the two systems, the SEC alleged, the company began to make accounting adjustments that, in Read more

With the benefit of a half-year of hindsight, it is worthwhile to confirm the compliance and risk-related lessons arising from the two recent. Delaware decisions addressing the McDonald’s workforce culture controversy.[1] For notwithstanding their technical Caremark guidance,[2] it has become clear over time that these decisions offer very practical lessons for corporate leadership as to […] Read more

Institutional Investors, climate disclosure, and carbon emissions There is an ongoing debate over the role institutional investors play in the global effort to control climate risk. While some contend that asset managers can contribute significantly in pushing companies to reduce their carbon footprint, others are more skeptical and recommend that authorities focus on traditional regulatory […] Read more

Hot Topics for Boards and Committees Board Agenda Topics Addressing the Use of Artificial Intelligence Many boards are seeking a general understanding of AI, how their companies and peers are using it, and potential risks and concerns arising from the use of AI, including any cybersecurity, privacy and other liability issues, as well as employee […] Read more

Antitrust and competition regulators in the United States, the European Union, the United Kingdom, and other prominent jurisdictions have recently emphasized the risk posed to competitive markets by so-called “killer acquisitions.”  According to this assertion, which has been adopted by much of the policy and scholarly literature, leading technology platforms—commonly known as “Big Tech”—regularly engage […] Read more

On Thursday last week, the SEC’s Investor Advisory Committee voted to approve, with two abstentions, a subcommittee recommendation regarding human capital management disclosure. You probably remember that, in 2020, during the tenure of then-SEC Chair Jay Clayton, the SEC adopted a new requirement to discuss human capital as part of an overhaul of Reg S-K that applied a “principles-based” approach. The new rule limited the requirement to a “description of the registrant’s human capital resources, including the number of persons employed by the registrant, and any human capital measures or objectives that the registrant focuses on in managing the business (such as, depending on the nature of the registrant’s business and workforce, measures or objectives that address the development, attraction and retention of personnel).” (See this PubCo post.)  With workforce having grown in importance as a value driver, many viewed the amendment as a step in the right direction, but one Read more

In a recent post on the Harvard Law School Forum on Corporate Governance, three partners at Skadden, Arps, Slate, Meagher & Flom LLP give practical advice to companies in preparing for and responding to a short attack.  With respect … Read more

On August 23, 2023, the US Securities & Exchange Commission (SEC) adopted new and amended rules (the New Rules) under the Investment Advisers Act of 1940 (Advisers Act) that focus on the SEC’s desire to address what it views to be “risks and harms that are common in an adviser’s relationship with private funds and […] Read more

Key Points The EU’s comprehensive new ESG disclosure requirements will force many multinationals with operations in Europe to decide how much information to disclose where, and to take measures to ensure their disclosures are consistent. The granular information required by the EU could feed litigation in the U.S. if the disclosures appear false or misleading, […] Read more

A look at the demographic makeup of the latest independent board directors Bringing on new board members presents a valuable opportunity for companies to benefit from fresh insights and expertise. In the following analysis, ISS Corporate Solutions examined the current directors across Russell 3000 companies to understand the diverse composition of the most recent group […] Read more

Financial Implications of Rising Political Risk in the US Posted by Stephen Davis (Harvard Law School), on Friday, September 15, 2023 Tags: C+C, CEOs, Presidential elections, US institutions In 2022, Corporate Time Horizons Shorten, Investors’ Lengthen Posted by Allen He, Jessica Pollock, FCLTGlobal, on Saturday, September 16, 2023 Tags: Corporate, investors, R&D, Shareholders The EU […] Read more

In corporate governance circles, the clash between the different philosophies of shareholder primacy and stakeholderism rages on. In a recent article in the Columbia Law Review, Professor Aneil Kovvali challenged what he calls the “stark choice hypothesis,” which suggests … Read more

Today, the Commission is considering final rules to update the Names Rule. I am pleased to support this rule adoption because it will help ensure that a fund’s portfolio matches a fund’s name. Such truth in advertising promotes fund integrity on behalf of fund investors. The Names Rule reflects a basic idea: A fund’s investment […] Read more

Thank you, Chair Gensler, and my thanks to the staff for their presentations. Today, the Commission is adopting amendments to rule 35d-1 under the Investment Company Act, known as the “fund names rule,” and related Form amendments, including to Form N-PORT. While the adopting release makes a number of changes from the proposal, they ultimately […] Read more

One area where SEC Enforcement appears to have focused its attention recently is whistleblower protections. In this Order against CBRE, Inc., the SEC brought settled charges against the commercial real estate services and investment firm for using an employee release form that the SEC alleged violated Exchange Act Rule 21F-17, the SEC’s whistleblower protection rule. The purpose of the whistleblower provisions in the Exchange Act, added in 2010 as part of Dodd-Frank, was to “encourage whistleblowers to report possible securities law violations by providing, among other things, financial incentives and confidentiality protections.” To prevent obstruction of that reporting, the SEC adopted Rule 21F-17, which provides that “[n]o person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement...with respect to such communications.”  The SEC’s order found that, “by conditioning separation Read more

Delaware General Corporation Law § 220 permits shareholders to inspect a corporation’s books and records for a proper purpose, such as investigating managerial misconduct, valuing shares, or communicating with other shareholders. The Delaware case law interpreting this statute has created … Read more

Amid depressed financial markets and soaring inflation, activists are placing a heightened focus on company profitability and have been increasingly unforgiving of companies failing to maximize profits and streamline operations. In this section, the Diligent Market Intelligence (DMI) editorial team reveals our picks for the wildest activist campaigns of the 2023 season. So far this […] Read more

Supply chains have become an increasingly crucial board priority. Here’s why. Supply chains have always been vulnerable to disruption, but our current combined crises of COVID-19’s after-effects, the ongoing war in Ukraine, and ripples from recent trade wars have caused disturbances at never-before-seen magnitudes. Furthermore, increased expectations from internal and external stakeholders to operationalize sustainability […] Read more

Over the past four decades, the share of U.S. public firms held by institutional investors who concurrently invest in other firms within the same industry – common ownership – has increased fivefold. While some argue that common ownership has anticompetitive … Read more

On June 6, 2023, the Public Company Accounting Oversight Board (PCAOB), the nonprofit corporation established by Congress to oversee the audit of public companies, proposed new auditing standards designed to further its “investor-protection mandate.”[1]These standards, if adopted, would … Read more

These Key Findings are based on a dataset downloaded on July 31, 2023 from CEO Succession Practices in the Russell 3000 and S&P 500: Live Dashboard. The Live Dashboard is updated weekly with information on succession announcements about chief executive officers (CEOs) made at Russell 3000 and S&P 500 companies; please browse the Live Dashboard […] Read more

Key Points To prepare for the possibility of a short seller attack, companies should assess their vulnerabilities, maintain open channels of communication with shareholders, monitor short positions and changes in their shareholder base, and formulate a communications strategy. In the face of a short attack, it is vital for a company to respond promptly with […] Read more

Two recent settled actions suggest that SEC Enforcement seems to be scrutinizing disclosures about related-person transactions—or rather, the absence thereof.  The first, announced last week against Maximus, Inc., looks like a flub by the company in failing to disclose the employment of two immediate family members of a new executive. Maximus was required to pay a civil penalty of $500,000. The second settled action, against Lyft, involved the failure by the company to disclose the role of, and related compensation received by, a board member in architecting the sale by a shareholder of approximately $424 million worth of Lyft shares prior to the company’s IPO. According to the Order, “Lyft, which approved the sale and secured a number of terms in the contract, was a participant in the transaction.” Lyft was required to pay a civil penalty of $10 million. According to an SEC Associate Regional Director, the “federal securities Read more

Companies’ diversity and inclusion (D&I) practices have attracted widespread attention and support from investors, policymakers, and the public. Yet while they may advance social justice, these practices’ impact on a company’s operations remains unclear. Conventional wisdom is that a diverse … Read more

The suspense is over. The AP is reporting that California Governor Gavin Newsom said on Sunday that he “plans to sign into law a pair of climate-focused bills intended to force major corporations to be more transparent about greenhouse gas emissions and the financial risks stemming from global warming.” Those bills are Senate Bill 253, the Climate Corporate Data Accountability Act,  and SB261, Greenhouse gases: climate-related financial risk. SB 253 would mandate disclosure of GHG emissions data—Scopes 1, 2 and 3—by all U.S. business entities (public or private) with total annual revenues in excess of a billion dollars that “do business in California.” SB 253 has been estimated to apply to about 5,300 companies. SB 261, with a lower reporting threshold of total annual revenues in excess of $500 million, would require subject companies to prepare reports disclosing their climate-related financial risk, in accordance with TCFD framework, and describing their measures adopted to reduce Read more

Introduction Each year during proxy season, ISS Corporate Solutions (ICS) analyzes recently collected data from Russell 3000 company filings. This year we focused on director support and diversity, executive compensation, and shareholder proposals. In this season-ending review, we aggregate our findings for a comprehensive lookback on the 2023 proxy season. Key Takeaway Boards continued to […] Read more

So-called “passive” index funds, which track a pre-specified underlying index, manage over $12 trillion in assets. It is widely assumed that the managers of these funds cannot select portfolios that deviate from the index’s holdings. In Discretionary Investing by ‘Passive’ S&P 500 Funds (hyperlink to https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4553420), we show this assumption is false as a matter […] Read more

Alliance Advisors, a proxy solicitation and corporate advisory firm, has posted its 2023 Proxy Season Preview, an analysis of trends from the 2023 proxy season. Its principal message: ESG proposals saw sagging results again this year, “continuing a downward trend” from 2021.  Although the number of shareholder proposals submitted to U.S. public companies was substantial (958 as of June 30, 2023, compared with 987 for all of 2022), Alliance Advisors reports that there was a dramatic decline from last year in “average support across all categories of shareholder proposals,” and “the number of majority votes plunged from 80 in 2022 to 28 in the first half of 2023.”  More specifically, according to Alliance, average support on governance proposals fell to 29.9% in 2023 from 37.4% in 2022 and 38.4% in 2021, and there was a bit of a roller-coaster effect on compensation-related proposals, where average support declined to 23.7% in Read more

When assessing the legality of actions by boards of directors, corporate officers, and shareholders, judges use five standards of review: the business judgment rule, Unocal, Revlon, the entire fairness standard, and, to some degree, Blasius.[1] These … Read more