Shaping Tomorrow’s Dialogues – Bridging Gaps between Companies and Investors

Posted by Sallie Pilot, The Investor Forum, on
Wednesday, May 1, 2024
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Sallie Pilot is a Senior Adviser at The Investor Forum. This post is based on her Investor Forum report.

In the dynamic landscape of investment, where change and uncertainty are dominant features, the Investor Forum, has undertaken a comprehensive assessment of the pivotal dialogues between UK listed companies and their institutional investors. The standout finding is that the foundations of the relationships are robust and when companies and their investors have opportunities for meaningful dialogue, they are more likely to realise their common goal of sustainable long-term value creation. 

These insights from the Investor Forum, a non-profit community interest company set up by institutional investors in UK equities, confirm the role that effective communications can have in driving sustainable long term value creation amidst rapidly changing stakeholder interests and market dynamics.

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Contextual Corporate Governance

Posted by Kevin D. Chen (Duke University), John E. Core (MIT), and Wayne R. Guay (University of Pennsylvania), on
Wednesday, May 1, 2024
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Kevin D. Chen is an Assistant Professor of Accounting at Duke University, John E. Core is the Nanyang Technological University Professor and a Professor of Accounting at MIT, and Wayne R. Guay is the Yagao Professor of Accounting at the University of Pennsylvania. This post is based on their SSRN working paper.

Although academics and practitioners generally view corporate governance as context-specific, existing measures of governance quality in the literature typically do not incorporate contextual information. That is, these measures assert the efficacy of specific governance mechanisms, often weighted equally, without considering that different types of firms might require different governance structures. While this practice undoubtedly stems from its convenience in operationalizing measures of governance quality, incorporating contextual factors would seem a natural next step in extending these measures and our understanding of the way governance influences corporate decision-making. How does context matter for corporate governance? To what extent is governance-relevant context observed or unobserved? Can observed contextual information be leveraged to improve measures of governance quality?

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The SEC and CFTC Overhaul Form PF

Posted by Michael Didiuk, Malik Rollins, and Joseph Daly, Schulte Roth & Zabel LLP, on
Wednesday, May 1, 2024
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Michael Didiuk is a Partner, Malik Rollins is Special Counsel, and Joseph Daly is an Associate at Schulte Roth & Zabel LLP. This post is based on their Schulte memorandum.

The US Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”) have overhauled Form PF and private fund managers have until March 12, 2025, to begin reporting on the new Form. The changes to the reporting requirements mandated by the amendments to the Form (“Form PF Amendments”) will require substantial preparation by many managers.[1]

The Form PF Amendments are designed to enhance both the SEC’s and the Financial Stability Oversight Council’s (“FSOC”) monitoring of systemic risk, and strengthen the regulatory oversight of private funds and investor protection efforts.[2] The Form PF Amendments were jointly adopted by the SEC and CFTC on Feb. 8, 2024, with the Chairman of the SEC, Gary Gensler, noting “since Form PF first was adopted [12 years ago], the SEC, CFTC, and FSOC have identified gaps in the information . . . from private fund advisers . . . and amendments . . . will enhance the [SEC’s, the CFTC’s,] and [the] FSOC’s understanding of the private fund industry as well the potential systemic risk posed by the industry and its individual participants. In addition, the adoption also furthers investor protection efforts.”

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Action Items for Boards: Where Directors and C-Suite Leaders Align and Diverge

Posted by Frank Kurre, Protiviti; Mark Rogers, BoardProspects; and Michael Tae, Broadridge Investor Communication Solutions, on
Tuesday, April 30, 2024
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Frank Kurre is a Managing Director at Protiviti, Mark Rogers is Founder and CEO at BoardProspects, and Michael Tae is Co-President at Broadridge Investor Communication Solutions. This post is based on their Protiviti memorandum.

The relationship between the board and the management team is vital to the success of any company or organization, and like every relationship, there are areas of strong alignment, as well as points of divergence.

This is a principle well understood in the corporate governance community, but as longtime advisers to boards and management teams, our organizations (Protiviti, Broadridge and BoardProspects) sought to quantify these alignments and disagreements.

Based on our survey of more than 1,000 directors and C-level executives, respondents reported a meaningful perception gap between how the Board views its performance and risk preparedness and how management teams view these same critical areas. Taken together, the areas of agreement and the points of difference provide reminders and insights on how boards and the C-suite can accomplish more together.

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Against Contractual Formalism in Shareholder Oppression Law

Posted by Benjamin Means (University of South Carolina) and Douglas K. Moll (University of Houston), on
Tuesday, April 30, 2024
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Benjamin Means is a Professor of Law and the John T. Campbell Chair in Business and Professional Ethics at the University of South Carolina School of Law, and Douglas K. Moll is the Beirne, Maynard & Parsons, L.L.P. Professor of Law at the University of Houston Law Center. This post is based on their article forthcoming in the UC Davis Law Review.

In a closely held corporation, there are few shareholders, the stock is not publicly traded, and, typically, the principal shareholders take an active role in management. Without control rights or exit rights, however, minority shareholders are inherently vulnerable to mistreatment. The majority elects the board of directors, and the board calls the shots. Taken together, the minority’s lack of control and lack of liquidity empower majority shareholders to freeze out the minority owners from any return on their investment. Compounding this unfair treatment, the majority may then offer to repurchase the minority’s stock at pennies on the dollar, knowing that the minority has no choice but to capitulate.

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Data in the Driver’s Seat: What Boards Need to Know about Data Governance

Posted by Beth George, Christine Lyon, and Pam Marcogliese, Freshfields Bruckhaus Deringer LLP, on
Tuesday, April 30, 2024
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Beth George is a Partner, Christine Lyon is a Partner and Global Co-Head of Data Privacy and Security, and Pam Marcogliese is Head of US Transactions at Freshfields Bruckhaus Deringer LLP. This post is based on a Freshfields memorandum by Ms. George, Ms. Lyon, Ms. Marcogliese, Elizabeth Bieber, Nomi Conway, and Rachel Johnson.

Artificial intelligence (AI) – and particularly generative AI – has accelerated the race toward ever more innovative data-driven products and services, and sharpened focus on the ever-growing importance of data. As the value of data increases, legislators, regulators, and enforcement bodies are jockeying for position as referees of AI and data protection. The result is an expanding body of laws, regulation, guidance, and enforcement that create new obligations for companies about how they collect and use data, protect consumer rights, secure their systems, and develop and deploy data-driven technologies. Companies also may find themselves facing pointed and wide-ranging questions from regulators, the media, customers, employees, suppliers, and shareholders about their data-related practices.

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UK Takeover Panel Proposes Narrowing the Scope of Companies Subject to the Takeover Code

Posted by Bruce Embley, Simon Toms, and Craig Kelly, Skadden, Arps, Slate, Meagher & Flom LLP, on
Monday, April 29, 2024
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Bruce Embley and Simon Toms are Partners and Craig Kelly is a Counsel at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on a Skadden memorandum by Mr. Embley, Mr. Toms, Mr. Kelly and George Knighton.

On 24 April 2024, the UK Takeover Panel (the Panel) published Public Consultation Paper 2024/1 (the PCP), which proposes a significant change to the applicability of the UK Takeover Code (the Code), by narrowing the scope of companies to which the Code applies.

The amendments proposed by the PCP would, if adopted, result in a significantly reduced number of companies subject to the Code and impact those that are incorporated in the UK but listed on the NYSE or NASDAQ.
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For or against? The year in shareholder resolutions—2023

Posted by Donna F. Anderson and Jocelyn S. Brown, T. Rowe Price, on
Monday, April 29, 2024
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Donna F. Anderson is Global Head of Corporate Governance and Jocelyn S. Brown is Head of Governance for EMEA and Asia-Pacific at T. Rowe Price. This post is based on their T. Rowe Price memorandum.

This is the fourth year that we have published analysis of our voting results on shareholder resolutions on environmental, social, and political topics.[1] Since the 2021 proxy voting season, when these resolutions earned unusually high support, we have observed a bifurcation among proponents of these resolutions, particularly in the U.S. and Canada. Many resolutions are still put forward under a traditional framework of advocating for actions that could increase the value of the corporation or reduce the risks it faces. However, a new approach has taken hold in these markets that we believe is not tethered to value creation for shareholders. We explore the effects of this bifurcation in this year’s report.

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Introduction to SEC v. Panuwat: Understanding “Shadow” Insider Trading

Posted by J.W. Verret (George Mason University), and Greg Lawrence (Lawrence Law), on
Monday, April 29, 2024
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J.W. Verret is an Associate Professor of Law at George Mason University and a Counsel at Lawrence Law, and Greg Lawrence is a Partner at Lawrence Law. This post is based on their recent paper.

In the groundbreaking case SEC v. Panuwat, the Securities and Exchange Commission (SEC) successfully pioneered a legal theory referred to as “shadow” insider trading. This concept extends traditional insider trading paradigms to situations where an individual, privy to material non-public information (MNPI) regarding one company (Company A), capitalizes on that knowledge to trade securities in another company (Company B). The facts of the case against Matthew Panuwat, a former executive at Medivation, illuminate this novel application of the law.

According to the SEC’s complaint, Panuwat, an employee of the pharmaceutical company Medivation, became aware that Medivation would soon be bought out. Just a few minutes after learning that information, Panuwat commenced purchasing out-of-the-money, short-term call options in another company, Incyte Corp. The SEC argued that Incyte was a closely comparable company to Medivation, and therefore, these trades in Incyte constitute illegal insider trading.

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Climate Action 100+ Departures Put Proxy Voting in the Spotlight

Posted by Lindsey Stewart, Morningstar, Inc, on
Sunday, April 28, 2024
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Lindsey Stewart is Director of Investment Stewardship Research at Morningstar, Inc. This post is based on a Morningstar memorandum by Mr. Stewart and River Meng.

Key Takeaways

Manager Exits Grab Headlines Ahead of Proxy Season 

  • Five US asset managers recently decided to exit or amend their participation in the Climate Action 100+ engagement initiative. The initiative has faced accusations of collusive behavior, which it denies.
  • Invesco, JPMorgan, Pimco, and State Street have left the initiative. BlackRock has restricted its participation to its non-US business.
  • The five exited or amended signatories’ support for 20 climate-related resolutions flagged by CA100+ averaged 45%, with a range of 10% to 95%.

Proxy-Voting Records Show No Evidence of Collusion

  • Proxy-voting records for the 20 flagged resolutions in 2023 suggest a wide range of voting approaches among CA100+ signatories, not collusion.
  • The 50 CA100+ signatories we reviewed supported an average 76% of the resolutions. Support by 10 nonsignatories averaged 27%.
  • The 35 asset manager signatories supported an average 74% of the resolutions, ranging from 10% to 100%. Average support by five nonsignatory asset managers in the US stood much lower, at 11%.

Further Evidence of Managers’ US-Europe Divide 

  • The average voting profile of the five exited or amended signatories is very similar to that of other US managers. The 20 US managers we reviewed supported an average 48% of the 20 resolutions.
  • In contrast, 20 European managers we reviewed supported an average 85% of the 20 resolutions.
  • Twenty public pension asset owners in the US and Canada averaged 71% support for the proposals. Even among five nonsignatory asset owners, only two supported less than 60% of the 20 resolutions.

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