Corporate governance - Vigil

Google won its fight against a 1.12 billion-euro ($1.3 billion) French tax bill after a court rejected claims the search-engine giant abused loopholes to avoid paying its fair share.

Early in June, the House of Representatives passed a piece of legislation, dubbed the Financial CHOICE Act, which would gut much of Dodd-Frank. One of its provisions would make it impossible for all but the largest investors to file shareholder proposals by requiring that investors must hold at least one percent of the outstanding shares for three years in order to file a proposal.

Following the corporate governance scandals of the early 2000s, the effectiveness of board monitoring came into question. In response, Congress passed the Sarbanes-Oxley Act of 2002 (SOX) in an attempt to increase monitoring and improve corporate governance.

Two letters from members of the House of Representatives directed Chairman Clayton to continue his predecessor’s efforts toward requiring companies to provide more information on the diversity composition of their boards.

A controversial new metric on executive pay is on Congress’s chopping block. Shareholders should want it to survive, even if it only provides a sliver of insight into the companies they own.

Proxy advisory firms could have to cross a number of regulatory hurdles if a member of the SEC has his way.

The U.S. Supreme Court’s decision to deny the petition for a writ of certiorari in U.S. v DeCoster [1] assures that Responsible Corporate Officer Doctrine (“RCOD”) enforcement exposure will remain a disconcerting compliance risk that boards in several key industries must monitor.

This post provides an overview of shareholder proposals submitted to public companies for 2017 shareholder meetings, including statistics and notable decisions from the staff (the “Staff”) of the Securities and Exchange Commission (the “SEC”) on no-action requests.

Following the corporate governance scandals of the early 2000s, the effectiveness of board monitoring came into question. In response, Congress passed the Sarbanes-Oxley Act of 2002 (SOX) in an attempt to increase monitoring and improve corporate governance.

Amid regulatory and legislative uncertainty, investors remain committed to holding boards, and themselves, to higher levels of accountability, transparency and engagement. The 2017 proxy season is marked by the launch of a historic US stewardship code and the emergence of proxy access as standard practice across large companies.

Shareholder activists seeking to nominate director candidates for election to the boards of their portfolio companies are advised to be on the lookout for the latest trap for the unwary designed by company defense law firms to further entrench board members. The trap is embedded in questionnaires and representation agreements that are now commonly required to be submitted by a nominating shareholder’s director nominees under nomination procedures contained in company bylaws. Taking the bait can give the company a significant strategic advantage over the dissident in an election contest.

In recent years, companies increasingly have been undertaking internal investigations in an effort to uncover and remediate corporate wrongdoing. Some internal investigations are handled by the company’s board of directors, if a majority of the board is comprised of independent directors, while others are carried out by the audit committee (see Box, Audit Committee Investigations, below) or other existing board committee. In many cases, however, the board creates a special committee of independent board members specifically to conduct the investigation.

The adoption by companies and their boards of a more flexible and varied approach to shareholder engagement can help improve outcomes, according to governance professionals.

In the push for board diversity, investors simply want to know that boards have the right mix of skill sets, backgrounds, and perspectives to address the emerging strategic issues that all companies face. As customer data, cybersecurity, and digital marketing become increasingly critical to today’s organizations, boards are reaching out to younger directors to ensure they have the right generational perspectives to advance their products and services into the future. Age is quickly becoming a diversity focus, and institutional investors are lining up in support.

As passive investing via funds that track market indices continues to grow, the terrain where investors are fighting battles over governance reform is now expanding beyond contested stockholder meetings and into debates over the criteria for eligibility of issuers for inclusion in these indices. Indeed, in this era of index fund investing, a company focused on the future trading price of its shares should be much more concerned about gaining entry into and maintaining eligibility for indices than whether there will be a withhold vote recommendation on the members of its governance committee. If this direction continues to gain traction, we could end up with a market dominated by passive strategy investing where the current importance of familiarity with the hot button governance concerns of proxy advisory firms and institutional investors becomes subsidiary to understanding how to navigate new, governance-related eligibility requirements of major equity indices.

Regarding M. Todd Henderson and Dorothy Shapiro Lund’s “Index Funds Are Great for Investors, Risky for Corporate Governance” (op-ed, June 23): The suggestion that index funds relinquish their voting rights is irresponsible and ill-informed. Doing so would systematically disenfranchise tens of millions of individuals who use low-cost, broadly diversified index funds and ETFs to save for retirement, education, new homes and secure financial futures.