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Spencer Stuart Shows How Boards Are Transforming

The 2019 U.S. Spencer Stuart Board Index (Index) reflects the board practices and trends of S&P 500 companies. According to the Index, boards are responding to investors’ increasing calls for greater diversity of “gender, age, race/ethnicity and professional backgrounds.” Spencer Stuart found that “boards are accelerating the addition of women and minority directors,” which in turn is driving notable changes in board composition. Spencer Stuart predicts that the biggest drivers of board refreshment will be replacing retiring directors and adding new skills to the board.

The Index covers public companies in the S&P 500 as of May 15, 2019 and the proxy statements released between May 30, 2018 and May 15, 2019.
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NYC Comptroller Stringer Suggests “Rooney Rule” to Boost More Women and People of Color in Corporate Leadership

The New York City Retirement Systems (NYCRS) continues its effort to foster diversity in the leadership of the companies in which it invests. NYCRS is a collection of pension funds that together have over $200 billion in assets under management, and Comptroller Stringer serves as the investment advisor and custodian/trustee.

Boardroom Accountability Project 3.0

Last week, Comptroller Stringer announced the launch of the latest phase of the NYCRS’ shareholder engagement initiative, Boardroom Accountability Project 3.0.  With each phase, the NYCRS designates one or more themes on which to engage with its portfolio companies.  Project 3.0’s theme is increasing the accessibility of director and CEO positions for women and persons of color by encouraging companies to adopt a “Rooney Rule” policy, resembling the one employed by the National Football League. 
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Delaware Chancery Court Declines to Dismiss Caremark Claim Against Directors for Insufficient Monitoring of Experimental Drug

On October 1, 2019, in In re Clovis Oncology Inc. Derivative Litig., a Delaware Chancery Court denied a motion to dismiss the plaintiffs’ Caremark claim alleging that individual directors should be held financially liable for failing to monitor the development of the biotech firm’s only promising experimental drug and for allowing the firm to publish inflated performance results. Clovis is significant because it marks the second opinion issued by the Delaware courts in recent months that allowed a Caremark claim to withstand a motion to dismiss, even though a Caremark claim is one of the most difficult to plead and prove.
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ISS Calls for Feedback on Proposed 2020 Voting Policies: Multi-Class Structures, Independent Board Chair and Share Buybacks

Yesterday, Institutional Shareholder Services Inc. (ISS) announced proposed voting policies for 2020 affecting proposals related to three areas: (1) multi-class structures for newly public companies; (2) independent board chair; and (3) share buybacks. ISS states that the proposed changes either clarify an existing policy or largely codify an existing practice.

ISS requests feedback on the proposed rules, and market participants can submit comments until 5:00 PM ET on Friday, October 18, 2019. ISS expects to release its final policies in the first half of November 2019.

Over the summer, ISS administered its annual benchmarking survey to market participants, and two of the three topics covered by the proposed rules (multi-class structures and independent chair) were included in the survey.
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Russell 3000 Board Seats Occupied by Women Pass the 20% Mark

Women now occupy more than 20% of Russell 3000 board seats, according to a recently released Equilar report. Equilar states that this is the first time Russell 3000 boards have achieved this milestone. In addition, Equilar found that women constituted over 40% of new directors during the first half of 2019, compared to 17.8% of new directors in 2014.

As discussed in a September 11 WSJ article, companies may be responding to a number of factors including existing or anticipated state legislative pressure. California made headlines in 2018 by being the first state to require exchange-listed companies with principal offices within its borders to have at least one female board member or potentially face a monetary fine.
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Key Findings of ISS 2019 Benchmarking Policy Survey

Yesterday, Institutional Shareholder Services Inc. (ISS) announced the results of its 2019 Global Policy Survey (a.k.a. ISS 2019 Benchmark Policy Survey) based on respondents including investors, public company executives and company advisors. ISS will use these results to inform its policies for shareholder meetings occurring on or after February 1, 2020. ISS expects to solicit comments in the latter half of October 2019 on its draft policy updates and release its final policies in mid-November 2019.

While the survey included questions targeting both global and designated geographic markets, the key questions affecting the U.S. markets fell into the following categories: (1) board composition/accountability, including gender diversity, mitigating factors for zero women on boards and overboarding; (2) board/capital structure, including sunsets on multi-class shares and the combined CEO/chair role; (3) compensation; and (4) climate change risk oversight and disclosure.
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ISS Launches Annual Benchmarking Policy Survey

Yesterday, Institutional Shareholder Services Inc. (ISS) announced its annual Benchmarking Policy survey. ISS will use survey responses to inform its policies governing 2020 shareholder meetings. Institutional investors, public companies, board directors, corporate advisors and other market participants are welcome to participate. Participants can make survey submissions until 5:00 PM ET on August 9, 2019.  ISS typically publishes the survey results a few weeks thereafter.

While the survey includes questions targeting both global and designated geographic markets, the key questions affecting the U.S. markets fall into the following categories: (1) board composition/accountability, including gender diversity and overboarding, (2) board/capital structure, including dual or multi-class shares and combined CEO/chairs, (3) compensation and (4) climate change risk oversight and disclosure.
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Delaware Supreme Court on Director Risk Oversight and Independence

Key Holding and Facts. In Marchand vs. Barnhill, Chief Justice Leo E. Strine, Jr. writing on behalf of the Delaware Supreme Court earlier this month reversed the Court of Chancery’s 2018 dismissal of a stockholder derivative suit alleging Caremark claims.  Caremark claims are essentially claims asserting bad faith by board members such that the directors breached their duty of loyalty. The facts underlying the case are well documented and spanned over several years, but generally involved a listeria outbreak at the ice cream production facilities of Blue Bell Creameries, a privately held monoline ice cream manufacturer, which resulted in devastating losses, including the death of three consumers, plant shutdowns, financial impairment and various regulatory investigation and private party litigation, including by the Food and Drug Administration (FDA), Centers for Disease Control and Prevention (CDC) and the Department of Justice (DOJ).
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Director Survey Reflects Tension and Skepticism of Investor Priorities

PwC’s annual corporate directors survey concludes that boards are evolving and seeking change, rather than primarily valuing collegiality and consensus.  The survey also shows some discontent among directors with their fellow members, and that they remain unconvinced about the importance of some key investor prerogatives.

About 45% of directors think that a member of their board should be replaced, with 21% of them indicating that two or more directors are underperforming.  The types of issues that directors cite as indicators of poor behavior include both too much as well as too little involvement; 18% believe that fellow directors overstep the boundaries of his or her oversight role, while 16% point to other directors’ reluctance to challenge management as a significant issue.
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California Enacts Law Requiring Public Company Boards to Include Women

As our client memo explains, yesterday the governor of California signed a bill that requires public companies with executive offices in the state to include a specific number of women on their boards of directors.

Governor Brown’s statement acknowledges that “serious legal concerns” have been raised about the bill, and that “flaws” in the bill may “prove fatal to its ultimate implementation.”  However, he believes that “recent events in Washington D.C. [and] beyond” make it “crystal clear that many are not getting the message.”

His letter was copied to the U.S. Senate Judiciary Committee.
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Mr. Clayton Goes to Washington

SEC Chair nominee Jay Clayton’s March 23rd hearing before the Senate Banking Committee covered much of the expected ground. In a series of responses designed to avoid controversy, Clayton repeatedly returned to the three core mandates of the SEC – capital formation, investor protection and efficient markets – as touchstones for his future leadership of the Commission, should he be confirmed. Beyond these general areas, Clayton offered few specifics or signals as to how he might steer the Commission during his term as Chair. He did, however, discuss concerns about growing companies finding the U.S. public markets unattractive due to the burdens of being a public company.
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Delaware Supreme Court Finds Relationships Taint Director Independence, Promotes Internet Searches

Recently, the Delaware Supreme Court reversed the Court of Chancery in Sandys v. Pincus on findings of director independence at Zynga.  The Court of Chancery had dismissed the suit for failure to make pre-suit demand on the board or alleging that demand would have been futile, but the Delaware Supreme Court found that the plaintiff had created a reasonable doubt that the board could have properly exercised independent, disinterested business judgment in responding to a demand.  If director independence is compromised, then demand is excused.  

The plaintiff had brought suit for breach of fiduciary duties after the board exempted several insiders, both top managers and directors, from its insider trading policy. 
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