Blog Posts Tagged With Board Matters

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Delaware Case Challenges Forum Selection Provisions by Recent IPO Companies

A complaint for declaratory judgment in the Court of Chancery of the State of Delaware is challenging the forum selection clauses in several recent IPOs.  Plaintiff argues that the provisions adopted by Blue Apron, Stitch Fix and Roku are not permissible under Delaware law.

Unlike the Chevron-style forum selection clauses that make state courts the sole and exclusive forum for derivative actions, claims for breaches of fiduciary duties, claims arising under state law or incorporation documents, or claims governed by the internal affair doctrine of the state, the provisions in question at these IPO companies make federal district courts the exclusive forum for the resolution of complaints asserting causes of action under the Securities Act of 1933. Continue Reading

As Spencer Stuart Releases its Latest S&P 500 Board Index, How Does Your Board Compare?

It’s no longer a trendy topic, but instead has become routine, to recognize that investors are deeply interested in board composition.  The 2017 Spencer Stuart Board Index on S&P 500 boards provides a useful and detailed benchmark on some key practices.

Companies continue to add new directors, and many of them are sitting on their first boards.  Slightly more than half, or 52%, of S&P 500 companies added one new independent director to their boards, for a total of 397 new directors, an increase of 15% from last year.   About 45% of the new directors are serving on their first public company boards, with women or minorities making up more than half of those first-time directors, who also tend to be actively employed. Continue Reading

As the Investor Stewardship Group Framework Goes into Effect, Investors Want Companies to Explain Their Governance Practices

The Framework for U.S. Stewardship and Governance launched by the Investor Stewardship Group, which we previously discussed here, becomes effective on January 1, 2018.

According to a press release issued by ISG, beginning with the 2018 proxy season, ISG is “encouraging” companies to explain “how their governance structures and practices align with the ISG’s Corporate Governance Principles and where and why they differ in approach.” Companies are free to choose how and where to disclose their alignment with the Principles, which may be through investor relations, boards, corporate governance websites or shareholder engagement materials.

The release notes that the goal of ISG is to establish the very first broad-based U.S. Continue Reading

Activism at Public Companies Leads to Less Diverse Boards

Shareholder activism decreases the number of women and minority directors on target company boards, an impact seen even after activism ends, according to a new ISS study commissioned by the Investor Responsibility Research Center Institute (IRRCi).

The study examined 380 board seats filled at S&P 1500 companies as a result of activist campaigns from 2011 through the end of 2015, including directors nominated by dissidents, directors who joined boards as a result of company settlements with activists and those added by corporate boards themselves immediately before or during activism.  The changes to board composition resulted in younger, more independent and less diverse directors who tended to have financial backgrounds and no prior board experience about half the time. Continue Reading

Company Drops Plans to Issue No-Vote Share Class

In the midst of the controversy over Snap’s issued no-vote shares, and Blue Apron’s authorized but not issued no-vote shares, one company has discarded its efforts to form a class of stock without any voting rights.

In November 2016, IAC/Interactive Corp. announced a plan to adjust its capital structure through a charter amendment to enable a new class of non-voting capital stock, Class C. The company intended to declare and pay a dividend of one share of Class C for each outstanding share of IAC common stock and Class B common stock. Shareholders were asked to vote on the recapitalization at the company’s December annual meeting. Continue Reading

Activist Files Suit Over Board Disqualification Bylaw

Activist Stilwell Funds has sought to invalidate and enjoin the enforcement of HopFed Bancorp’s bylaws on director qualifications, filing suit in the Delaware Court of Chancery. The activist owns 9.5% of the company’s shares.

Stilwell Funds had previously nominated Robert Bolton, who was elected to the company’s board at the 2013 meeting. In the complaint, the activist alleged that Bolton was excluded from committee service, and also barred him from major board deliberations by contending that he was affiliated with Stilwell. The complaint stated that the board even refused to reimburse Bolton for travel expenses to board meetings, and also discouraged his efforts to attend meetings by phone. Continue Reading

Board Trends at the S&P 1500 Companies

ISS Board Practices show the continuing strength of key governance trends and the differences in practices between large- and mid-cap companies. Directors elected annually and by majority vote has become the norm at about 90% of large-caps, compared to around 60% of mid-caps. The adoption of both practices continues to rise each year.

Large-caps tend to be much less inclined to separate CEO and chair roles, however, especially as more investors accept lead directors with robust responsibilities as demonstrating appropriate independent leadership. 35% of mid-cap companies, but only 26% of large-caps, have independent chairmen. More than half of the large-caps continue to combine the CEO and chair roles, a trend that has actually increased from last year when it was only 43%. Continue Reading

BlackRock Issues Engagement Priorities for the Coming Year

BlackRock’s Investment Stewardship team of over 30 specialists globally is responsible for engagement with portfolio companies, viewing engagement as an important way to provide feedback and note concerns about factors that affect company performance. The investor emphasizes that they intend to engage “in a constructive manner” by asking questions, not telling companies what to do. If they have concerns, they will explain them and provide companies with time to respond. However, BlackRock also declares that “our patience is not infinite” and they will make voting decisions against companies if they do not see any progress after ongoing engagement.

For 2017 to 2018, BlackRock has issued its priority themes to help company boards and management prepare for engagement with the investor. Continue Reading

State Street Targets Companies for Lack of Board Gender Diversity and Provides a Gender Diversity Framework to Promote Increased Representation

Wall Street, Meet Fearless Girl. See the picture and watch the video.

That’s the tagline used by State Street in announcing, on the eve of International Women’s Day, that it has placed a temporary statute right near Wall Street of a girl with her arms crossed facing the Wall Street bull, to represent the future. On the same day, State Street called on the 3,500 companies it holds to take concrete steps to increase the number of women on their boards, as a governance issue of critical importance to boards and investors in 2017.

In a three-page guidance, State Street provides its position on gender diversity and a framework to help boards enhance the representation of female directors. Continue Reading

Study Examines Boardroom Refreshment Practices Over Nearly 10 Years

In 145 pages, IRRC Institute and ISS teamed up on a study of board refreshment trends at S&P 1500 companies from 2008 to 2016.

Boardroom Demographics.  The study examines the composition of boards in terms of tenure, age, diversity and experience as board members. 

  • Director Tenure.  Average boardroom tenure rose from 8.4 years in 2008 to nine years in 2013 before leveling at 8.7 years. Surprisingly, the average tenure for women directors of 6.4 years is identical to the level in 2008, while male directors currently have average tenures of 9.2 years.
  • Director Age.  The typical director is 62.5 years, which is the oldest age for the 2008 to 2016 study period.
Continue Reading

Major Institutional Investors Adopt Corporate Governance Framework

A group of major investors has endorsed a corporate governance framework to go into effect on January 1, 2018. The Investor Stewardship Group (ISG) currently comprises BlackRock, CalSTRS, Florida State Board of Administration (SBA), GIC Private Limited (Singapore’s Sovereign Wealth Fund), Legal and General Investment Management, MFS Investment Management, MN Netherlands, PGGM, Royal Bank of Canada (Asset Management), State Street Global Advisors, TIAA Investments, T. Rowe Price Associates, Inc., ValueAct Capital, Vanguard, Washington State Investment Board, and Wellington Management.

The ISG was formed to enable investors who sign on to “speak with one voice,” resulting in a framework consisting of a set of six corporate governance principles and six stewardship principles for institutional investors. Continue Reading

CII Advocates for Consequential Majority Voting, a Departure from Common Practice

The Council of Institutional Investors has published an FAQ on majority voting for directors in which it advocates for “consequential majority voting,” a form of majority voting in director elections that essentially removes board discretion if a director receives less than majority support.

90% of S&P 500 companies have a traditional form of majority voting, compared to only 29% of Russell 3000 companies. Most mid-cap and small-cap companies elect directors under a plurality vote system, where the nominees who receive the most “for” votes are elected until all board seats are filled. In an uncontested election, given that the number of nominees is equal to the number of board seats available, a nominee can be elected with one vote. Continue Reading

Fee-Shifting Bylaw Found Invalid by Delaware Court

The Delaware Court of Chancery recently ruled that a form of fee-shifting bylaw linked to exclusive forum provisions is invalid.

Six months after Delaware adopted DGCL Section 109(b) to restrict fee-shifting bylaws, by providing that the bylaws of Delaware corporations may not contain any provision that would impose liability on a stockholder for the attorneys’ fees or expenses of the corporation or any other party in connection with an internal corporate claim, Paylocity Holding Corporation adopted two new bylaws.

The company adopted an exclusive forum bylaw that requires internal corporate claims to be filed in a state or federal court located in Delaware. Continue Reading

Board Composition at the S&P 500 Companies

The composition of boards continues to be a focus for investors, and companies are responding by paying increased attention both to who sits on their boards and to enhancing their disclosure and engagement with investors. The data reported in the 2016 Spencer Stuart Board Index  on S&P 500 boards highlights emerging practices, compiled from proxy disclosure and a related survey. Overall, the trends have stayed steady from last year but represent a meaningful departure from 10 years ago.

Composition of new directors.  345 new directors joined 233 boards, with 87 boards adding more than one new director. Nearly one-third of the independent directors are serving on their first outside corporate boards, compared to 26% last year. Continue Reading

Commonsense Corporate Governance Principles Issued

A group of twelve CEOs, including JPM, Berkshire Hathaway, GE, GM, Verizon and those from major institutional investors such as Capital Group, BlackRock, Vanguard, StateStreet, T. Rowe Price and ValueAct, have developed a set of “Commonsense Corporate Governance Principles.”  Their open letter states that the purpose of the group was to try to reach consensus on what “good corporate governance” means in the real world.  While the group recognizes that there is significant variation among public companies, they want the principles to serve as a catalyst for discussion.

Some of the recommendations regarding governance practices include:

Composition of boards of directorsContinue Reading

Court Denies Proxy Contest After Board Determines Dissident Candidates Failed to Complete Questionnaire

A recent case interprets and demonstrates the importance of the requirements in advance notice bylaws.

The U.S. District Court in the Northern District of Texas granted a preliminary injunction to Ashford Hospitality Prime that invalidated Sessa Capital’s slate of candidates for Ashford’s annual meeting. Sessa owns more than 8% of Ashford’s stock and notified the company that it intended to nominate five candidates to Ashford’s seven-member board.

Ashford’s bylaws require nominees to fill out a questionnaire, and include all information relating to the nominee that must be disclosed in connection with the solicitation of proxies in a contested election under SEC rules. Continue Reading

Davis Polk Covers Recent Developments on the Activist Landscape

Our client memorandum on the civil action brought against ValueAct by the Department of Justice for failing to comply with antitrust waiting period examines the implications for other investors that engage with companies across a range of issues.

On April 21, we are hosting a webcast on the global trends and strategies for responding to shareholder activism, including trends in Hong Kong, the U.K. and the U.S.  Register for the webcast here. Continue Reading

IPO Governance Gains Investor Attention

CII issued a recent policy statement focused on newly public companies, prompted by concerns about high-profile IPOs using dual-class shares.  In 2015, dual-class IPOs raised twice as much capital compared to the prior year.

Companies going public are urged to avoid the following structures, either at the outset or by changing them over a period of time through the use of a “sunset” mechanism:

  • Multi-class equity structure with unequal voting rights;
  • Plurality vote requirement for uncontested director elections;
  • Lack of independent board leadership, whether the chair or lead director;
  • Classified board structure; and
  • Super-majority vote requirements for bylaw amendments and other proposals.
Continue Reading

Focus on Director Tenure Begins to Target Specific Lengths of Service

Investors have expressed concerns about the length of director tenure for several years, pushing companies to focus on board succession planning and board refreshment processes.  There has been, however, a reluctance to draw a hard line in the sand as to how many years of service is too long, until now.

Legal & General Investment Management (LGIM), a European institutional asset manager, developed a new policy that targets specific years of service.  Beginning in 2017, it will vote against the chair of the nominating and governance committee if the average board tenure is 15 years or higher or if no new directors have joined the board in at least five years.  Continue Reading

Report Shows Activists Don’t Nominate Women, as Congress Pressures the SEC to Require More Board Diversity Disclosure for Public Companies

According to an analysis by Bloomberg, since 2011, 5 of the biggest U.S. activist funds have nominated women just 7 times in seeking 174 board seats.  Bloomberg examined Elliot Management, Icahn Associates, Pershing Square, Third Point and Value Act.

Not one of Icahn Associates’ 42 nominees to fill 94 board seats in the past five years was a woman.  Pershing Square nominated more women than any of the other funds, in recommending 3 women for 23 directorships.  At companies in the S&P 500 index, 26% of seats were filled by women over the same period.

Some members of Congress are urging the SEC to push companies to go further through public disclosure.  Continue Reading

State Street Urges Companies to Focus on Independent Board Leadership and Provides Detailed Guidelines on Structure and Responsibilities

Strong independent leadership will be a key focus of State Street’s 2016 corporate governance engagement program, according to a letter that the investor sent to board members.

All companies do not need to divide the CEO and Chair roles to obtain independent board leadership, State Street noted, since separating the positions does not always guarantee independence but rather, “[a]s is often the case with simple solutions, it may make some investors feel better.”

But the investor is concerned that 23% of S&P 500 companies and 34% of the Russell 3000 do not have either an independent chair or an independent lead director. Continue Reading

SEC Chair’s Remarks on Recent Governance Topics of Interest

Chair White covered a wide array of topics recently at a securities regulation conference, though the press immediately focused on her comments about the possibility of new rules for disclosing board diversity. Her comments on that and other governance issues follow.

Additional board diversity disclosures being studied. Chair White believes that diversity adds value to boards and makes them function better, and is troubled by the dearth of diversity on boards currently. Speaking personally, she disputes notions that there is a supply problem. In terms of the SEC’s regulatory mandate, the SEC does not require disclosure about board qualifications other than with respect to disclosure rules on director experience, backgrounds and diversity policies. Continue Reading

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