What You Show Know About Engaging with BlackRock on Human Capital Management

BlackRock has recently elaborated on what companies can expect when engaging with them on human capital management (HCM) matters, which BlackRock defines as including “employee development, diversity and a commitment to equal employment opportunity, health and safety, labor relations, and supply chain labor-standards, amongst other things.”

For industries and markets where talent is limited or constrained, BlackRock believes corporate strategies must address topics such as “how [companies] are establishing themselves as the employer of choice for the workers on whom they depend.” In these types of business environments, strong HCM can be viewed as a competitive advantage and a contributing factor to a company’s business continuity and success. Continue Reading

More Investors to Vote Against Directors for Lack of Board Diversity, and Specialty ISS Policies Push for 30% Diverse Representation

Certain investors are expected to hold governance committees, and in some cases the entire board, accountable through director elections this proxy season for perceived lack of board diversity.

ISS has updated its Socially Responsible Investing (SRI) and Catholic Faith-Based policies so that the proxy advisor will recommend against incumbent governance committee members under the SRI policy, and all incumbent board members under the Catholic Faith-Based policy, at boards that are not at least 30% diverse and include at least one woman and one ethnic minority.  Given that only 24% of Russell 3000 boards have such composition, the policies are expected to result in a “substantial increase” in the number of negative recommendations for directors.  Continue Reading

SEC Cybersecurity Guidance and Commissioner Comments in the Context of an SEC Cybersecurity Enforcement Case Related to Insider Trading

The SEC cybersecurity guidance, which we discuss in this client memo, reminds companies that their directors, officers and “other corporate insiders” should be aware that they may violate securities laws if they trade company securities while possessing knowledge of a company’s cybersecurity risks and incidents before that becomes public information.

The guidance address some specific actions to review to mitigate the risks of insider trading. It encourages companies to consider (a) how their codes of conduct and insider trading policies take into account and prevent trading on the basis of material nonpublic information about cybersecurity matters; (b) whether and when it may be appropriate to implement restrictions on trading during investigations of cybersecurity incidents before breaches are made publicly known; and (c) adopting “prophylactic measures” through policies and procedures to protect against insider trading in these cases. Continue Reading

State Street Screens S&P 500 Companies for Non-Compliance with Investor Stewardship Group Governance Principles

The Chief Investment Officer of State Street Global Advisor (SSGA) has sent letters to board chairs and lead directors at S&P 500 companies requesting that they report on their compliance with the principles outlined by the Investor Stewardship Group (ISG).  We previously discussed the ISG Corporate Governance Principles here.

Starting this month, SSGA will review governance practices at those companies and seek to “proactively engage with companies to better understand the reasons for non-compliance.”  If SSGA believes that companies are not adequately explaining their governance approaches, either publicly or through engagement, SSGA may hold the board accountable by voting against the independent chair, lead independent director or most senior independent director up for election. Continue Reading

First Wave of Pay Ratio Disclosures Filed

U.S. public companies recently began disclosing their CEO-to-median employee pay ratios, as required by the Dodd-Frank Act and Item 402(u) of Regulation S-K.  It is still too early to draw conclusions, but this memorandum outlines some preliminary observations based on our review of the pay ratio disclosure included in 35 SEC filings through February 2018, including the range of pay ratios and calculation methodologies disclosed.

Read the Full Memo Continue Reading

SEC Approves Rules to Eliminate Requirement for NYSE-Listed Companies to Provide Hard Copies of Proxy Materials to NYSE

NYSE-listed companies that file proxy materials under Schedule 14A so that the materials are available on Edgar will no longer have to send hard copies to the NYSE.

The NYSE had proposed eliminating the rule because it currently conducts reviews of proxy materials by examining the filings on Edgar, and reviews are often completed before the hard copies are received.

If proxy materials are not made on Schedule 14A but are available on Edgar, then the listed company must inform the NYSE of the information needed to identify the filing as containing proxy materials. These may include foreign private issuers that file proxy materials under Form 6-K or 8-K, or U.S. Continue Reading

A First – SEC Staff Decides in Favor of a Company Using SLB 14I

A company will be permitted to exclude a shareholder proposal seeking a report assessing the environmental impacts of continuing to use “K-Cup Pods brand packaging.”  The company argued that the proposal is not economically relevant under Rule 14a-8(i)(5) and included a discussion of considerations by its board of directors, pursuant to the recent Staff Legal Bulletin 14I (SLB 14I).

In light of SLB 14I, which stated that the board of directors of a company is best positioned to consider whether a proposal is “otherwise significantly related to the company’s business,” the nominating and corporate governance committee considered the proposal’s significance.  This included both the economic contribution of licensing fees and royalty income from the sale of K-Cup pods as well as whether the proposal is otherwise significantly related to the company’s business.  Continue Reading

SEC Issues Updated Cybersecurity Guidance

On February 21, the Securities and Exchange Commission released updated interpretive guidance on cybersecurity disclosure, reaffirming staff guidance issued in 2011, providing more detailed guidance on disclosure of cybersecurity risks and incidents, advising companies to ensure that their disclosure controls and procedures take account of cybersecurity risks and noting the implications of cybersecurity incidents for insider trading prohibitions and Regulation FD compliance.

The interpretive guidance lends the Commission’s imprimatur to the previously issued staff guidance and underscores the importance for a company to be attuned to securities law obligations when responding to or managing for cyber risks and incidents.

Read Full Newsflash Continue Reading

SEC Staff Denied No-Action Relief for Independent Chairmen Shareholder Proposals that Referred to NYSE Standards

The SEC staff recently denied no-action relief to two Nasdaq-listed companies that sought to exclude proposals asking for independent chairmen where the resolutions referred to NYSE independent director requirements.  The companies had cited to prior staff decisions that permitted companies to exclude proposals where the NYSE standards were part of the resolutions for independent chairmen proposals.

The resolutions of the proposals that the Staff declined to exclude state:  “[t]hat shareholders ask that [the company] adopt a policy, and amend other governing documents as necessary, to require that the Board’s Chair be held by an independent director, as defined in accordance with applicable requirements of the NYSE.”

Previously, in 2013, the Staff had permitted proposals with the following resolution to be excluded based on vagueness:  “[t]hat shareholders of [the company] ask the Board of Directors to adopt a policy that the Board’s Chair be an independent director according to the definition set forth in the New York Stock Exchange standards.”

At that time, the Staff indicated that “because the proposal does not provide information about what the New York Stock Exchange’s definition of ‘independent director’ means, we believe shareholders would not be able to determine with any reasonable certainty exactly what actions or measures the proposal requires.”

No explanation was given for the recent decisions. Continue Reading