Top 10 de Harvard Law School Forum on Corporate Governance au 9 juillet 2020


Comportements inadéquats d’un PDG lors des réunions du conseil d’administration


Voici un cas publié sur le site de Julie McLelland qui aborde une question de gouvernance relative aux comportements d’un PDG lors des réunions du conseil d’administration d’un OBNL.

Comme c’est souvent le cas, c’est un nouveau membre du CA qui a amorcé le questionnement sur la façon de se comporter du PDG lors des réunions.

Xuan, le nouvel administrateur, a constaté que le PDG voyageait souvent et qu’il n’y avait pas une politique de remboursement des frais le concernant.

Le fait d’aviser le président et de mettre cette question à l’ordre du jour a fait réagir fougueusement le PDG !

Xuan se demande comment il peut aider le président à trouver une issue à ce gâchis !

Le cas a d’abord été traduit en français en utilisant Google Chrome, puis, je l’ai édité et adapté. On y présente la situation de manière sommaire, puis trois experts se prononcent sur le cas.

Bonne lecture ! Vos commentaires sont toujours les bienvenus.

Comportements inadéquats d’un PDG lors des réunions du conseil d’administration

 

Xuan a rejoint le conseil d’administration d’un organisme à but non lucratif (OBNL). Lors de sa première réunion, il a été stupéfait de l’attitude et du comportement du PDG ; celui-ci a tenté de diriger la réunion en disant aux administrateurs quand ils pouvaient parler, quand ils en avaient suffisamment discuté, et quel devait être le résultat ou la décision. Xuan a parlé au président après la réunion et ils ont convenu que ce n’était pas acceptable.

Xuan a rejoint le comité d’audit. Le PDG n’a pas assisté à la réunion du comité alors qu’il avait été invité. Le personnel ne savait pas où se trouvait le PDG et a laissé entendre qu’il était peut-être en voyage, car il voyageait « beaucoup ». Encore une fois, Xuan a discuté de la question avec le président et a découvert que le PDG voyageait fréquemment, réservait son propre voyage et réclamait des dépenses, que le directeur financier lui remboursait.

Pour la prochaine réunion du conseil d’administration, Xuan a préparé un document recommandant une politique de voyage comprenant des autorisations avant les réservations et l’approbation des remboursements par le président. Les déplacements et les remboursements du chef de la direction devaient être approuvés par le président et déposés pour information à la prochaine réunion du conseil.

Le document sur la politique des frais de voyages n’était pas dans le dossier envoyé avant la réunion. La discussion n’était pas non plus à l’ordre du jour. Xuan a de nouveau avisé le président qui lui a dit qu’il soulèverait la question avec le PDG. Deux heures plus tard, le PDG envoyait un courriel au conseil d’administration disant qu’il « démissionnait avec effet immédiat ». Au cours des prochaines heures, les administrateurs se sont envoyé des courriels et ils ont convenu qu’ils souhaitaient accepter la démission.

Le président a répondu en acceptant poliment la démission et en demandant une réunion pour discuter des détails administratifs. Le PDG a répondu qu’il était revenu sur sa décision de démission, estimant que le conseil d’administration minait son autorité. Celui-ci voulait être réintégré ou licencié avec les « avantages appropriés ».

Xuan n’a aucune formation en RH ou en droit. Comment peut-il aider la présidence à trouver une bonne solution à ce gâchis ?

Iain’s Answer

Hi Xuan,

Whew. You’ve walked into a wild party. I wish I could say it was unprecedented, but it’s not.  I’ve known more than one CEO who thought their job was to run the board. Others try to manipulate the board more subtly for their own ends. It won’t do.

There is a clear line of responsibility, by which the board is responsible to the shareholders (or the members of a non-profit association) for the good governance of the organisation.  One of the ways the board undertakes that role is by appointing, monitoring, and if necessary replacing, a CEO. To travel at the organisation’s expense without accountability is pretty flagrant, and your paper proposing proper accountability around this issue is quite appropriate. It is inexcusable that your proposal was dropped from the board papers without discussion.

A resignation cannot be retracted except by mutual agreement, and in your case the board had already agreed to accept the CEO’s resignation, and through its Chair had communicated this. You want to support your Chair.  It’s time to help him lance the boil and move on.  You can be a witness and backup when the Chair tells the CEO that there is no going back, the resignation has been accepted, and any amounts legally due to him on termination will be paid out.  Make sure there is good legal advice on exactly what should be said and paid.

Hold firm against any further bluster. And over the next few months the organisation will need stabilising, it will need a reliable acting CEO, and the board will need to find and engage the next CEO.  That’s a time of tension and high workload for your Chair.

When it’s all done, put it behind you and turn to face the future. Good luck.

Iain Massey is CEO of South West Leaders and Upland Consulting, he is also Chairman of AICD’s South West Regional Committee and Chairman of the Board of Forrest Personnel. He is based near Bunbury, in the south west of Western Australia.

Julie’s Answer

Xuan does not need an HR background to recognise that something is horribly wrong between this board and its CEO. The whole board should provide CEO oversight and Xuan can expect help from his board colleagues. His (quite correct) instinct to use policies to control expenditure may have triggered this incident but he is not responsible; this is not just for him and the Chair to resolve.

This could get nasty and Xuan must ensure emotion does not cause anyone to say or do something unhelpful. First the board should delegate the matter to a committee. They should get copies of the CEO’s contract, last performance review, and a list of all travel taken in the last year or two with the costs, destinations, duration, and purpose of trip. If there was a travel policy or prior agreement about travel the board should also get that.

Concurrent with getting this information they should appoint a specialist employment lawyer. This is important, even if the board has HR skills, or if the company has a senior HR manager; they need impartial expert advice.

All my experience tells me that the board should part company with this CEO. It may be cheaper to accept retraction of the resignation and then terminate for cause. It may be less disruptive to accept resignation rather than an accusatorial termination. The lawyer will help plot the best course.

An interim CEO may be appointed while the board begins a search for a permanent solution. The board should consider getting training to raise their skills in CEO oversight.

Julie Garland McLellan is a non-executive director and board consultant based in Sydney, Australia.

Richard’s Answer


The CEO resigning is the best thing that happened to the not for profit. The Board should not entertain any reversal of the CEO’s resignation whatsoever.

The Board needs to act swiftly and decisively. A protracted affair has the potential to harm the reputation of the not for profit, demoralise staff and ultimately be very expensive.

Given that the CEO is making allegations and demands Xuan should recommend that the Chairman engage an employment lawyer to guide the board as to their legal position and what they should do next to minimise any potential harm.

At the same time, the Board should instruct the CFO to investigate the CEO’s travel and all other expenditure for at least a couple of financial years. Sounds like the CEO may have something to hide and could be in breach of their contractual and other fiduciary obligations. The findings must be shared with the employment lawyer.

Once this matter is resolved the Board must take a deep and hard look at itself and consider why they let the CEO behave so inappropriately for so long.  At the same time, the Board will need to revisit the NFP’s policies and procedures playbook to ensure that money and time being spent by all staff is directed exclusively to furthering the mission of the NFP.

Finally, the Board must give careful consideration as to the attributes of their next CEO and how the hiring process should be conducted (from defining the position through to background verification) so that mistakes of making a bad hire are not repeated.

Richard Sterling is a Director of AltoPartners Australia. He is based in Sydney, Australia.

Top 10 de Harvard Law School Forum on Corporate Governance au 25 juin 2020


Conseils d’administration français | Plus de femmes, mais toujours aussi peu de jeunes


Voici un article d’intérêt pour les personnes intéressées par l’évolution en matière de gouvernance, publié sur le site de

The Conversation

Bonne lecture !

 

Conseils d’administration : plus de femmes, mais toujours aussi peu de jeunes

 

 

La diversité de genre est devenue naturelle dans les conseils d’administration du SBF 120, mais la diversité en matière d’âge reste limitée et l’ouverture des conseils d’administration aux 40 ans et moins demeure une exception (10 % des élus).

C’est ce qui ressort des statistiques établies après les assemblées générales 2020 du baromètre de la diversité dans les conseils d’administration publié chaque année depuis 2014 par Burgundy School of Business (BSB).

Une diversité de genre entrée dans les pratiques

Trois ans après la mise en place du quota de 40 % prévu par la loi Copé-Zimmermann, pratiquement la moitié des administrateurs nommés dans les sociétés françaises du SBF 120 aux AG 2020 sont en effet des femmes. Le SBF 120 est composé des 40 valeurs du CAC 40 et de 80 valeurs parmi les 200 premières capitalisations boursières françaises. Même si la proportion est moindre, les recrutements ont également été féminins pour 36 % dans les sociétés étrangères du SBF 120.

Évolution du % de femmes dans les conseils d’administration depuis la promulgation de la loi Copé-Zimmermann. baromètre BSB

La part des femmes dans les conseils d’administration se stabilise à 45,2 %.

Profils des femmes et hommes nommés en 2020 au sein des conseils d’administration. baromètre BSB

Les résultats confirment en outre la convergence des profils entre hommes et femmes que nous avions relevée en 2019. Les caractéristiques dominantes sont les mêmes chez les hommes et chez les femmes nouvellement nommés : formation en gestion (65 %), expérience de direction (directeurs, membres du comité exécutif : 66 %), expérience internationale (66 %), expérience en finance (53 %) et expérience comme administrateur(trice) d’autres sociétés cotées (60 %).

Par ailleurs, l’influence des réseaux sur le recrutement se renforce. Les administrateurs nommés aux assemblées générales de 2020 sont pour 44 % d’entre eux diplômés d’une école d’élite (contre 40 % en 2019), et 21 % ont une expérience en ministère (18 % en 2019). Après avoir connu une baisse de 2014 à 2017, les statistiques sont en augmentation pour les femmes comme pour les hommes. Les réseaux d’administrateurs sont également très influents avec 60 % des nouveaux nommés ayant ou ayant eu au moins un mandat dans une autre société cotée.

Évolution de la part des administrateurs et administratrices nouvellement nommés dont le recrutement est lié à l’influence des réseaux. baromètre BSB

Alors que les réseaux d’administrateurs étaient très masculins, ils se sont ouverts aux femmes avec la loi Copé-Zimmermann et les nouvelles administratrices sont même plus nombreuses en proportion à avoir cette expérience : 63 % contre 58 % pour les hommes.

Un âge moyen qui reste à 54 ans

 

En revanche, la diversité en matière d’âge reste limitée et l’ouverture des conseils d’administration aux 40 ans et moins reste une exception (10 % des élus).

Le code de gouvernement des entreprises cotées de l’Afep-Medef, actualisé en janvier 2020, suggère pourtant aux conseils « de s’interroger sur l’équilibre souhaitable de sa composition en matière de diversité (représentation des femmes et des hommes, nationalités, âge, qualifications et expériences professionnelles, etc.) ».

Répartition des nouveaux administrateurs (hommes et femmes) en fonction de l’âge. BSB

Plusieurs freins ont été identifiés : influence des réseaux d’administrateurs, les jeunes n’étant pas encore dans ces réseaux, crainte du manque de connaissances et d’expériences des candidats plus jeunes, d’une intégration et d’une cohésion avec le groupe qui seraient plus délicates.

Les études montrent pourtant que leurs apports pourraient être multiples : représentants d’une partie des consommateurs et au fait des enjeux de la société de demain, notamment ceux liés à la transformation numérique, ils favoriseraient l’innovation grâce à l’élargissement de la gamme des choix et des solutions lors des décisions stratégiques. La mixité d’âge faciliterait en outre la transmission de savoir entre les générations.

Peut-être faudra-t-il légiférer comme au Québec pour que le recrutement des administrateurs évolue en matière d’âge. Avec la loi 693 adoptée en 2016, les sociétés d’État québécoises devront, à compter de 2021, avoir une personne âgée de moins de 35 ans au sein de leur conseil d’administration.

D’autres pistes peuvent être suggérées pour plus de mixité d’âge : davantage informer et former aux mandats d’administrateurs dans l’enseignement supérieur, ou encore mettre en place des interfaces entre jeunes cadres et conseils d’administration telles que des plates-formes de recrutement et de candidatures.

Top 10 de Harvard Law School Forum on Corporate Governance au 4 juin 2020


Top 10 de Harvard Law School Forum on Corporate Governance au 28 mai 2020


Top 10 de Harvard Law School Forum on Corporate Governance au 21 mai 2020


Voici le compte rendu hebdomadaire du forum de la Harvard Law School sur la gouvernance corporative au 21 mai 2020.

Cette semaine, j’ai relevé les dix principaux billets.

Bonne lecture !

 

Top 10 de Harvard Law School Forum on Corporate Governance au 7 mai 2020


Voici le compte rendu hebdomadaire du forum de la Harvard Law School sur la gouvernance corporative au 7 mai 2020.

Cette semaine, j’ai relevé les dix principaux billets.

Bonne lecture !

 

Top 10 de Harvard Law School Forum on Corporate Governance au 16 avril 2020


Voici le compte rendu hebdomadaire du forum de la Harvard Law School sur la gouvernance corporative au 16 avril 2020.

Cette semaine, j’ai relevé les dix principaux billets.

Bonne lecture !

 

Dix éléments majeurs à considérer par les administrateurs en temps de COVID-19


Voici dix éléments qui doivent être pris en considération au moment où toutes les entreprises sont préoccupées par la crise du COVID-19.

Cet article très poussé a été publié sur le forum du Harvard Law School of Corporate Governance hier.

Les juristes Holly J. Gregory et Claire Holland, de la firme Sidley Austin font un tour d’horizon exhaustif des principales considérations de gouvernance auxquelles les conseils d’administration risquent d’être confrontés durant cette période d’incertitude.

Je vous souhaite bonne lecture. Vos commentaires sont appréciés.

Ten Considerations for Boards of Directors

 

Boards and Crisis Infographic

 

The 2019 novel coronavirus (COVID-19) pandemic presents complex issues for corporations and their boards of directors to navigate. This briefing is intended to provide a high-level overview of the types of issues that boards of directors of both public and private companies may find relevant to focus on in the current environment.

Corporate management bears the day-to-day responsibility for managing the corporation’s response to the pandemic. The board’s role is one of oversight, which requires monitoring management activity, assessing whether management is taking appropriate action and providing additional guidance and direction to the extent that the board determines is prudent. Staying well-informed of developments within the corporation as well as the rapidly changing situation provides the foundation for board effectiveness.

We highlight below some key areas of focus for boards as this unprecedented public health crisis and its impact on the business and economic environment rapidly evolves.

 

1. Health and Safety

 

With management, set a tone at the top through communications and policies designed to protect employee wellbeing and act responsibly to slow the spread of COVID-19. Monitor management’s efforts to support containment of COVID-19 and thereby protect the personal health and safety of employees (and their families), customers, business partners and the public at large. Consider how to mitigate the economic impact of absences due to illness as well as closures of certain operations on employees.

 

2. Operational and Risk Oversight

 

Monitor management’s efforts to identify, prioritize and manage potentially significant risks to business operations, including through more regular updates from management between regularly scheduled board meetings. Depending on the nature of the risk impact, this may be a role for the audit or risk committee or may be more appropriately undertaken by the full board. Document the board’s consideration of, and decisions regarding, COVID-19-related matters in meeting minutes. Maintain a focus on oversight of compliance risks, especially at highly regulated companies. Watch for vulnerabilities caused by the outbreak that may increase the risk of a cybersecurity breach.

 

3. Business Continuity

 

Consider whether business continuity plans are in place appropriate to the potential risks of disruption identified, including through a discussion with management of relevant contingencies, and continually reassess the adequacy of the plans in light of developments. Key issues to consider include:

  • Employee/Talent Disruption. As more employees begin working remotely or are unable to work due to disruptions caused by COVID-19, continually assess what minimum staffing levels and remote work technology will be required to maintain operations. (Also, as noted above, consider how to mitigate the economic impact of absences due to illness as well as closures of certain operations on employees.)
  • Supply Chain and Production Disruption. Review with management the risks that a disruption in the supply chain will cause interruptions in operations and how to protect against such risks, including the availability of alternate sources of supply. Ask management to assess the risks that the company will have difficulty in fulfilling its contractual obligations and how management is preparing to address those risks, including through review of relevant provisions in customer contracts (e.g., force majeure, events of default and termination) to determine what recourse is available.
  • Financial Impact and Liquidity. Review with management the near-term and longer term financial impact (including the ability to meet obligations) of the COVID-19 pandemic and the related impact of the extreme volatility in the financial markets. Understand the assumptions underlying management’s assessment and discuss the likely outcome if those assumptions prove incorrect. Consider the need to seek additional financing or amend the terms of existing debt arrangements.
  • Internal Controls and Audit Function. Consider whether COVID-19 may have an impact on the functioning of internal controls and audit. For publicly-traded companies, remember that any material changes in internal control over financial reporting will require disclosure in the next periodic report.
  • Recent Securities Exchange Commission (SEC) guidance: In a March 4, 2020 press release, SEC Chair Jay Clayton urged companies to work with their audit committees and auditors to ensure that their financial reporting, auditing and review processes are sufficiently robust to enable them to meet their obligations under the federal securities laws in the current environment.
  • Key Person Risks and Emergency Succession Plans. Consider whether an up-to-date emergency succession plan is in place that identifies a person who can step in immediately as interim CEO in the event the CEO contracts COVID-19. Consider the need to implement similar plans for other key persons.
  • Incentives. Consider whether incentive plans need to be reworked in light of the circumstances, to ensure that appropriate behaviors are encouraged. Consider delaying setting incentive plan goals until the uncertainty has subsided or try to build in flexibility with respect to any goals set.
  • Board/Governance Continuity. Consider whether the board is appropriately positioned to provide guidance and oversight as the COVID-19 threat expands. Consider scheduling in advance special board meetings and/or information conference calls over the next three to four months, which can be cancelled if not needed. Decide whether to replace in-person meetings with conference calls to help limit the threat of contagion. Consider whether contingencies are in place if a board quorum is not available. Continue to meet regularly in executive session to discuss assessment of how management is managing the crisis.

 

4. Crisis Management

 

During this turbulent time, employees, shareholders and other stakeholders will look to boards to take swift and decisive action when necessary. Consider whether an up-to-date crisis management plan is in place and effective. A well-designed plan will assist the company to react appropriately, without either under- or over-reacting. Elements of an effective crisis management plan include:

  • Cross-Functional Team. Crisis response teams typically include key individuals from management, public relations, human resources, legal and finance. Identify these individuals now and begin meeting so that they are prepared to respond quickly as the crisis develops. The team should be in regular contact with the board (or a designated board member or committee) as the COVID-19 pandemic evolves.
  • Quick and Decisive Deployment. The plan should include crisis response procedures, communications templates, checklists and manuals that can be readily adapted to a variety of situations for effective, time-critical and agile deployment. The crisis response team should be familiar with the elements of the plan and ready to implement it at a moment’s notice.
  • Contingency Plans. A crisis is inherently unpredictable. However, the company should endeavor to anticipate all potential crises to which it is vulnerable and develop contingency plans to deal with those crises to minimize on-the-fly decision-making.
  • Examples of scenarios to prepare for: What will our response be if there is a confirmed case of COVID-19 within the company? How will we notify employees of a confirmed case and what privacy implications do we need to consider? What planning (e.g., IT training) is required if we need to mandate that our employees work remotely?
  • Thoughtful Communications. The board should oversee the company’s communication strategy. Clear communication and planning within the crisis response team will allow the company to communicate internally and externally in a calm and thoughtful manner, which will help build confidence during a volatile situation.

 

5. Oversight of Public Reporting and Disclosure for Publicly-Traded Companies

 

Companies must consider whether they are making sufficient public disclosures about the actual and expected impacts of COVID-19 on their business and financial condition. The level of disclosure required will depend on many factors, such as whether a company has significant operations in China or is in a highly affected industry (e.g., airlines and hospitality companies). In any event, boards should monitor to ensure that corporate disclosures are accurate and complete and reflect the changing circumstances.

Because the COVID-19 pandemic is unprecedented and changing by the day, the SEC acknowledges that it is challenging to provide accurate information about the impact it could have on future operations.

Recent SEC guidance: “We recognize that [the current and potential effects of COVID-19] may be difficult to assess or predict with meaningful precision both generally and as an industry- or issuer-specific basis.” Statement by SEC Chairman Jay Clayton on January 30, 2020.

  • Earnings Guidance. Consider whether previously issued earnings guidance should be downgraded to reflect the actual or likely impact of COVID-19 and, if so, how to describe the reason for the revision. Due to the current unpredictability of COVID-19’s impact, consider withdrawing previously-issued earnings guidance altogether or refraining from issuing guidance in the near term.
  • Risk Factor Disclosure. Consider how the COVID-19 pandemic may require additions or revisions to risk factor disclosures.
  • Recent SEC guidance: “We also remind all companies to provide investors with insight regarding their assessment of, and plans for addressing, material risks to their business and operations resulting from the coronavirus to the fullest extent practicable to keep investors and markets informed of material developments.” SEC March 4, 2020 press release.
  • Potential topics for risk factor disclosure include:
      • Disruptions to business operations whether from travel restrictions, mandated quarantines or voluntary “social distancing” that affects employees, customers and suppliers, production delays, closures of manufacturing facilities, warehouses and logistics supply and distribution chains and staffing shortages
      • Uncertainty regarding global macroeconomic conditions, particularly the uncertainty related to the duration and impact of the COVID-19 pandemic, and related decreases in customer demand and spending
      • Credit and liquidity risk, loan defaults and covenant breaches
      • Inventory writedowns and impairment losses
      • Ensure that risk factor disclosure is consistent with the board’s conversations with management about material risks.
  • Recent SEC guidance: “One analytical tool to evaluate disclosure in this context is to consider how management discusses … risks with its board of directors. Obviously not all discussions between management and the board are appropriate for disclosure in public filings, but there should not be material gaps between how the board is briefed and how shareholders are informed.” Statement by SEC Director, Division of Corporation Finance William Hinman on March 15, 2019.
  • As always, risk factor disclosure should be specific to a company’s individual circumstances and avoid generic language. Finally, be careful not to describe a risk related to COVID-19 as hypothetical if it has actually occurred.
  • Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A). Consider whether the actual or likely impact of COVID-19 on a company’s business (including its supply chain), financial condition, liquidity, results of operations and/or prospects would be deemed material to an investment decision in the company’s securities and require disclosure. Consider whether the impact or potential impact of COVID-19 on the company is a “known trend or uncertainty” requiring disclosure in the MD&A of the next periodic report. Tailor any MD&A disclosures to the impact of COVID-19 on the company’s business in particular. Consider whether disclosures appropriately address the potential impact of the COVID-19 pandemic on future results of operations.
  • Subsequent Events. A joint statement by SEC and Public Company Accounting Oversight Board (PCAOB) leadership on February 19, 2020 specific to COVID-19 reporting considerations encouraged companies to consider the need to potentially disclose subsequent events in the notes to the financial statements in accordance with guidance included in Accounting Standards Codification 855, Subsequent Events.
  • Forward-Looking Statements. Consider whether the company’s forward-looking statement disclaimer language adequately protects the company for statements it makes regarding the expected impacts of COVID-19. It should be specific and consistent with updates made to the risk factors and other public disclosures.
  • Recent SEC guidance: “Companies providing forward-looking information in an effort to keep investors informed about material developments, including known trends or uncertainties regarding the coronavirus, can take steps to avail themselves of the safe harbor in Section 21E of the Exchange Act for this information.” SEC March 4, 2020 press release.
  • Updates. Consider whether prior disclosures should be revised to ensure they are accurate and complete. While there is no express duty to update a forward-looking statement, courts are divided as to whether a duty to update exists for a forward-looking statement that becomes inaccurate or misleading after the passage of time (from the perspective of claim under Exchange Act Section 10(b) and Rule 10b-5).
  • Recent SEC guidance: “Depending on a company’s particular circumstances, it should consider whether it may need to revisit, refresh, or update previous disclosure to the extent that the information becomes materially inaccurate.” SEC March 4, 2020 press release.
  • Proxy Statements. Given the SEC’s emphasis on discussion of how boards oversee the management of material risks, consider expanding the proxy statement disclosure of board oversight of COVID-19-related risks where material to the business. 5Recent SEC guidance: “To the extent a matter presents a material risk to a company’s business, the company’s disclosure should discuss the nature of the board’s role in overseeing the management of that risk. The Commission last noted this in the context of cybersecurity, when it stated that disclosure about a company’s risk management program and how the board engages with the company on cybersecurity risk management allows investors to better assess how the board is discharging its risk oversight function. Parallels may be drawn to other areas where companies face emerging or uncertain risks, so companies may find this guidance useful when preparing disclosures about the ways in which the board manages risks, such as those related to sustainability or other matters.” Statement by SEC Director, Division of Corporation Finance William Hinman on March 15, 2019.
  • Also, consider cautioning stockholders that the annual meeting date and logistics are subject to change.
  • Current Reports. Consider the need to file a Form 8-K for material developments such as if the CEO or another key person or a significant portion of the workforce contracts COVID-19.
  • Conditional Filing Relief. Companies that anticipate filing delays due to COVID-19 should consider taking advantage of the SEC’s March 4, 2020 order granting an additional 45 days to meet Exchange Act reporting obligations for reports due between March 1 and April 30, 2020. See the Sidley Update available here for more details.

 

6. Compliance with Insider Trading Restrictions and Regulation FD for Publicly-Traded Companies

 

  • Insider Trading. Closely monitor and consider further restricting trading in company securities by insiders who may have access to material nonpublic information related to COVID-19 impacts (e.g., by requiring additional training, imposing blackout periods or enhancing preclearance procedures).
  • Recent SEC guidance: If a company “become[s] aware of a risk related to the coronavirus that would be material to its investors, it should refrain from engaging in securities transactions with the public and … take steps to prevent directors and officers (and other corporate insiders who are aware of these matters) from initiating such transactions until investors have been appropriately informed about the risk.” SEC March 4, 2020 press release.
  • Carefully consider whether the company should potentially buy back stock to take advantage of significantly depressed stock prices.
  • Regulation FD. Be mindful of Regulation FD requirements, particularly if sharing information related to the impact of COVID-19 with customers and other stakeholders.
  • Recent SEC guidance: “When companies do disclose material information related to the impacts of the coronavirus, they are reminded to take the necessary steps to avoid selective disclosures and to disseminate such information broadly.” SEC March 4, 2020 press release.

 

7. Annual Shareholder Meeting

 

With the Center for Disease Control recommending that gatherings of 50 or more persons be avoided to assist in containment of the virus, consider with management whether to hold a virtual-only shareholders meeting or a hybrid meeting that permits both in-person and online attendance. Public companies that are considering changing the date, time and/or location of an annual meeting, including a switch from an in-person meeting to a virtual or hybrid meeting, will need to review applicable requirements under state law, stock exchange rules and the company’s charter and bylaws. Companies that change the date, time and/or location of an annual meeting should comply with the March 13, 2020 guidance issued by the Staff of the SEC’s Division of Corporation Finance and the Division of Investment Management. See the Sidley Update available here for more details.

 

8. Shareholder Relations

 

Activism and Hostile Situations. Continue to ensure communication with, and stay attuned to the concerns of, significant shareholders, while monitoring for changes in stock ownership. Capital redemptions at small- and mid-sized funds may lead to fewer shareholder activism campaigns and proxy contests in the next several months. However, expect well-capitalized activists to exploit the enhanced vulnerability of target companies. The same applies to unsolicited takeovers bids by well-capitalized strategic buyers. If they have not already done so, boards should update or activate defense preparation plans, including by identifying special proxy fight counsel, reviewing structural defenses, putting a poison pill “on the shelf” and developing a “break the glass” communications plan.

 

9. Strategic Opportunities

 

Consider with management whether and if so where opportunities are likely to emerge that are aligned with the corporation’s strategy, for example, opportunities to fulfill an unmet need occasioned by the pandemic or opportunities for growth through distressed M&A.

 

10. Aftermath

 

Consider with management whether the changes in behavior occasioned by the pandemic will have any potential lasting effects, for example on employee and consumer behavior and expectations. Also, be prepared when the crisis abates to assess the corporation’s handling of the situation and identify “lessons learned” and actionable ideas for improvement.

Top 10 de Harvard Law School Forum on Corporate Governance au 27 février 2020


Voici le compte rendu hebdomadaire du forum de la Harvard Law School sur la gouvernance corporative au 27 février 2020.

Cette semaine, j’ai relevé les dix principaux billets.

Bonne lecture !

Résultat de recherche d'images pour "top 10"

Huit constats qui reflètent la mouvance de la gouvernance des sociétés


Aujourd’hui, je vous présente un article de John C. Wilcox *, président de la firme Morrow Sodali, paru sur le site du Harvard Law School Forum on Corporate Governance, qui met en lumière les grandes tendances dans la gouvernance des sociétés.

L’article a d’abord été traduit en français en utilisant Google Chrome, puis, je l’ai édité et adapté.

À la fin de 2019, un certain nombre de déclarations extraordinaires ont signalé que la gouvernance d’entreprise avait atteint un point d’inflexion. Au Royaume-Uni, la British Academy a publié Principles for Purposeful Business. Aux États-Unis, la Business Roundtable a publié sa déclaration sur la raison d’être d’une société. Et en Suisse, le Forum économique mondial a publié le Manifeste de Davos 2020.

Ces déclarations sont la résultante des grandes tendances observées en gouvernance au cours des dix dernières années. Voici huit constats qui sont le reflet de cette mouvance.

    1. Reconnaissance que les politiques environnementales, sociales et de gouvernance d’entreprise (ESG) représentent des risques et des opportunités qui ont un impact majeur sur la performance financière ;
    2. Réévaluation de la doctrine de la primauté des actionnaires et de la vision étroite des sociétés comme des machines à profit ;
    3. Adoption de la « pérennité » comme objectif stratégique pour les entreprises, antidote au court terme et voie pour renforcer la confiance du public dans les entreprises et les marchés de capitaux ;
    4. Reconnaissance que les entreprises doivent servir les intérêts de leurs « parties prenantes » ainsi que de leurs actionnaires ;
    5. Réaffirmation du principe selon lequel les entreprises doivent être responsables des conséquences humaines, sociales et de politiques publiques de leurs activités, en mettant l’accent sur la priorité à accorder aux changements climatiques ;
    6. Assertion que la culture organisationnelle est le reflet de son intégrité, de son bien-être interne, de sa pérennité et de sa réputation.
    7. Acceptation de la responsabilité élargie du conseil d’administration pour les questions concernant l’ESG, la durabilité, la finalité et la culture, ainsi que la collaboration avec le PDG pour intégrer ces facteurs dans la stratégie commerciale ;
    8. Émergence du « reporting intégré » [www.integrated reporting.org] avec son programme de réflexion intégrée et de gestion intégrée comme base du « reporting » d’entreprise

J’ai reproduit ci-dessous les points saillants de l’article de Wilcox.

Bonne lecture !

Corporate Purpose and Culture

 

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BlackRock’s Annual Letter

 

On January 14, 2020, right on cue, BlackRock Chairman and Chief Executive Larry Fink published his annual letter to corporate CEOs. This year’s letter, entitled “A Fundamental Reshaping of Finance,” is clearly intended as a wake-up call for both corporations and institutional investors. It explains what sustainability and corporate purpose mean to BlackRock and predicts that a tectonic governance shift will lead to “a fundamental reshaping of finance.” BlackRock does not mince words. The letter calls upon corporations to (1) provide “a clearer picture of how [they] are managing sustainability-related questions” and (2) explain how they serve their “full set of stakeholders.” To make sure these demands are taken seriously, the letter outlines the measures available to BlackRock if portfolio companies fall short of achieving sustainability goals: votes against management, accelerated public disclosure of voting decisions and greater involvement in collective engagement campaigns.

In setting forth its expectations for sustainability reporting by portfolio companies, BlackRock cuts through the tangle of competing standard-setters and recommends that companies utilize SASB materiality standards and TCFB climate metrics. In our view, individual companies should regard these recommendations as a starting point—not a blueprint—for their own sustainability reporting. No single analytical framework can work for the universe of companies of different sizes, in different industries, in different stages of development, in different markets. If a company determines that it needs to rely on different standards and metrics, the business and strategic reasons that justify its choices will be an effective basis for a customized sustainability report and statement of purpose.

As ESG casts such a wide net, not all variables can be studied at once to concretely conclude that all forms of ESG management demonstrably improve company performance. Ongoing research is still needed to identify the most relevant ESG factors that influence performance of individual companies in diverse industries. However, the economic relevance of ESG factors has been confirmed and is now building momentum among investors and companies alike.

Corporate Purpose

 

The immediate practical challenge facing companies and boards is how to assemble a statement of corporate purpose. What should it say? What form should it take?

In discussions with clients we are finding that a standardized approach is not the best way to answer these questions. Defining corporate purpose is not a compliance exercise. It does not lend itself to benchmarking. One size cannot fit all. No two companies have the same stakeholders, ESG policies, risk profile, value drivers, competitive position, culture, developmental history, strategic goals. These topics are endogenous and unique to individual companies. Collecting information and assembling all the elements that play a role in corporate purpose requires a deep dive into the inner workings of the company. It has to be a collaborative effort that reaches across different levels, departments and operations within the company. The goal of these efforts is to produce a customized, holistic business profile.

Other approaches that suggest a more standardized approach to corporate purpose and sustainability are also worth consideration:

  • Hermes EOS and Bob Eccles published a “Statement of Purpose Guidance Document” in August 2019. It envisions “a simple one-page declaration, issued by the company’s board of directors, that clearly articulates the company’s purpose and how to harmonize commercial success with social accountability and responsibility.”
  • CECP (Chief Executives for Corporate Purpose) has for 20 years been monitoring and scoring “best practices of companies leading in Corporate ” Many of CECP’s best practices take the form of short mission statements that do not necessarily include specific content relating to ESG issues or stakeholders. However, CECP is fully aware that times are changing. Its most recent publication, Investing in Society, acknowledges that the “stakeholder sea change in 2019 has redefined corporate purpose.”

A case can be made for combining the statement of purpose and sustainability report into a single document. Both are built on the same foundational information. Both are intended for a broad-based audience of stakeholders rather than just shareholders. Both seek to “tell the company’s story” in a holistic narrative that goes beyond traditional disclosure to reveal the business fundamentals, character and culture of the enterprise as well as its strategy and financial goals. Does it make sense in some cases for the statement of corporate purpose to be subsumed within a more comprehensive sustainability report?

Corporate Culture

 

Corporate culture, like corporate purpose, does not lend itself to a standard definition. Of the many intangible factors that are now recognized as relevant to a company’s risk profile and performance, culture is one of the most important and one of the most difficult to explain. There are, however, three proverbial certainties that have developed around corporate culture: (1) We know it when we see it -and worse, we know it most clearly when its failure leads to a crisis. (2) It is a responsibility of the board of directors, defined by their “tone at the top.” (3) It is the foundation for a company’s most precious asset, its reputation.

A recent posting on the International Corporate Governance Network web site provides a prototypical statement about corporate culture:

A healthy corporate culture attracts capital and is a key factor in investors’ decision making. The issue of corporate culture should be at the top of every board’s agenda and it is important that boards take a proactive rather than reactive approach to creating and sustaining a healthy corporate culture, necessary for long-term success.

The policies that shape corporate culture will vary for individual companies, but in every case the board of directors plays the defining role. The critical task for a “proactive” board is to establish through its policies a clear “tone at the top” and then to ensure that there is an effective program to implement, monitor and measure the impact of those policies at all levels within the company. In many cases, existing business metrics will be sufficient to monitor cultural health. Some obvious examples: employee satisfaction and retention, customer experience, safety statistics, whistle-blower complaints, legal problems, regulatory penalties, media commentary, etc. For purposes of assessing culture, these diagnostics need to be systematically reviewed and reported up to the board of directors with the same rigor as internal financial reporting.

In this emerging era of sustainability and purposeful governance, investors and other stakeholders will continue to increase their demand for greater transparency about what goes on in the boardroom and how directors fulfill their oversight responsibilities. A proactive board must also be a transparent board. The challenge for directors: How can they provide the expected level of transparency while still preserving confidentiality, collegiality, independence and a strategic working relationship with the CEO?

As boards ponder this question, they may want to consider whether the annual board evaluation can be made more useful and relevant. During its annual evaluation process, could the board not only review its governance structure and internal processes, but also examine how effectively it is fulfilling its duties with respect to sustainability, purpose, culture and stakeholder representation? Could the board establish its own KPIs on these topics and review progress annually? How much of an expanded evaluation process and its findings could the board disclose publicly?

Conclusion—A Sea Change?

 

In addition to the challenges discussed here, the evolving governance environment brings some good news for companies. First, the emphasis on ESG, sustainability, corporate purpose, culture and stakeholder interests should help to reduce reliance on external box-ticking and one-size-fits-all ESG evaluation standards. Second, the constraints on shareholder communication in a rules-based disclosure framework will be loosened as companies seek to tell their story holistically in sustainability reports and statements of purpose. Third, as the BlackRock letters make clear, institutional investors will be subject to the same pressures and scrutiny as companies with respect to their integration of ESG factors into investment decisions and accountability for supporting climate change and sustainability. Fourth, collaborative engagement, rather than confrontation and activism, will play an increasingly important role in resolving misunderstandings and disputes between companies and shareholders.

The 2020 annual meeting season will mark the beginning of a new era in governance and shareholder relations.


*John C. Wilcox is Chairman of Morrow Sodali. This post is based on a Morrow Sodali memorandum by Mr. Wilcox. Related research from the Program on Corporate Governance includes Toward Fair and Sustainable Capitalism by Leo E. Strine, Jr. (discussed on the Forum here).

Le modèle de gouvernance canadien donne la primauté aux Stakeholders | Le modèle de Wall Street donne la primauté aux actionnaires !


Shareholder Governance, “Wall Street” and the View from Canada

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The Business Roundtable, a group of executives of major corporations in the United States, recently released a statement on the purpose of a corporation that reflects a shift from shareholder primacy to a commitment to all stakeholders. While the statement seems radical to some, it is consistent with recent Canadian corporate law. Boards of directors in Canada have had to make decisions incorporating the concepts expressed in the Business Roundtable statement for over a decade.

The primary concern expressed by those opposed to a shift from shareholder primacy is that it undercuts managerial accountability, thereby resulting in increased agency costs and undermining the overall effectiveness and efficiency of corporations. The experience in Canada suggests such concerns are largely overblown.

A stakeholder-based governance model rejects the idea that corporations exist principally to serve shareholders. Instead, a stakeholder-based governance model requires the consideration of various stakeholder groups to inform directors as to what is in the best interest of the corporation.

The move to a stakeholder-based governance model is largely the result of general dissatisfaction with the shareholder primacy model, under which:

    • Management and boards felt intense pressure to focus on short-term results at the expense of long-term success;
    • Communities and workers often felt ignored or abandoned;
    • Customers felt unsatisfied with product quality and customer service;
    • And suppliers felt threatened and pressured to drive down costs, even if doing so requires reducing quality or moving offshore.

Indeed, the introduction of the statement by the Business Roundtable provides that:

Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity. We believe the free-market system is the best means of generating good jobs, a strong and sustainable economy, innovation, a healthy environment and economic opportunity for all.

Put differently, a stakeholder model reflects a rejection of the Gordon Gekko ethos from the 1987 movie “Wall Street” that “greed, for lack of a better word, is good.”

The 2008 Supreme Court of Canada decision in BCE Inc. v 1976 Debentureholders rejected Revlon duties to maximize shareholder value in connection with a change of control transaction. In its decision, the court specifically provided that “the fiduciary duty of the directors to the corporation originated in common law. It is a duty to act in the best interests of the corporation. Often the interests of shareholders and stakeholders are co-extensive with the interests of the corporation. But if they conflict, the directors’ duty is clear—it is to the corporation.”

The thinking in the BCE decision has now been reflected in Canada’s federal corporate statute, which provides that that, when acting with a view to the best interests of the corporation, directors may consider, without limitation, the interests of shareholders, employees, retirees and pensioners, creditors, consumers and governments; the environment; and the long-term interests of the corporation.

At its most basic level, the move away from shareholder primacy better reflects the history and animating principles of corporate law, which establish that a corporation is a separate legal person and its shareholders are not owners of its assets per se, but investors with certain contractual and statutory rights (including a right to elect directors and a residual claim on the assets). That distinction―that shareholders are not owners in the classic sense―is of fundamental importance and gets to the heart of corporate governance and the role of boards. Indeed, the seminal work of Berle and Means, which has influenced a generation of corporate governance scholars, is focused exactly on the separation of ownership and control.

When the BCE decision first came out in Canada some expressed concern that a focus on the corporation provides no meaningful guidance for boards of directors. That concern has not manifested itself. The experience of advising boards following BCE has not been one of confusion or uncertainty―that’s not to say decisions are easy, but well-advised boards of directors understand and act in accordance with their fiduciary duties as expressed by BCE.

It is also worth pointing out that a singular focus on shareholders does not provide clear guidance to boards of directors. In a modern public company, shareholders come and go, each with their own investment criteria and objectives.

As a practical matter, in Canada, a stakeholder model allows directors to exercise their business judgment to consider the interests of stakeholders, to the extent those directors have an informed basis for believing that doing so will contribute to the long-term success and value of the corporation. However, in the context of a change of control transaction, much of the focus rightly remains on what consideration shareholders will receive.

As long as directors fulfill their duties of loyalty and due care when considering the interests and reasonable expectations of the corporation’s stakeholders, the business judgment rule protects Canadian directors from liability. Minutes of meetings should reflect, where appropriate, that directors considered such factors as reputation of the corporation, legal and regulatory risk, investments in employees, the environment and any other matter that could affect the success or value of the corporation.

Other factors that help address concerns of those who fear a stakeholder-based governance system is that the market for corporate control remains healthy and, since Canadian securities law does not permit a “just say no” defense, the threat of an unsolicited offer being made directly to shareholders is always present. In addition, product markets and reputational pressures also provide meaningful incentives to promote responsible and disciplined management. And perhaps most important, shareholders retain their most basic and powerful right in the stakeholder model: they elect the board of directors and can change the board if they are dissatisfied with its performance.

So, to our friends in the United States, we encourage you to consider the experience here in Canada before concluding that the ideas put forth by the Business Roundtable will undermine the effectiveness of your public corporations.

Top 10 de Harvard Law School Forum on Corporate Governance au 13 février 2020


Voici le compte rendu hebdomadaire du forum de la Harvard Law School sur la gouvernance corporative au 13 février 2020.

Cette semaine, j’ai choisi dix billets d’intérêt. Il y a plusieurs rapports sur la gouvernance qui sont publiés en début d’année.

J’ai relevé les dix principaux billets.

Bonne lecture !

Top 10 predictions for Thailand 2020 | The Thaiger
  1. 2020 Governance Outlook
  2. Private Equity—Year in Review and 2020 Outlook
  3. Strengthening the Board’s Effectiveness in 2020: A Framework for Board Evaluations
  4. Leading Boards Rethinking Strategy and Enabling Innovation
  5. Year in Review: Delaware Corporate Law and Litigation
  6. Accelerating ESG Disclosure—World Economic Forum Task Force
  7. S&P 500 CEO Compensation Increase Trends
  8. Core Principles of Exculpation and Director Independence
  9. Let’s Get Concrete About Stakeholder Capitalism
  10. Technology and Life Science 2019 IPO Report

Top 15 de Harvard Law School Forum on Corporate Governance au 6 février 2020


Voici le compte rendu hebdomadaire du forum de la Harvard Law School sur la gouvernance corporative au 6 février 2020.

Cette semaine, j’ai choisi plusieurs billets d’intérêt. C’est normal, car c’est le début de l’année 2020 et il y a plusieurs rapports sur la gouvernance qui sont publiés à la fin du premier mois.

J’ai relevé les quinze principaux billets.

Bonne lecture !

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  1. Navigating the ESG Landscape
  2. 2019 Year-End Securities Enforcement Update
  3. IAC Recommendation Concerning SEC Guidance and Rule Proposals on Proxy Advisors and Shareholder Proposals
  4. SEC’s Office of Compliance Inspection: Examination Priorities for 2020
  5. 2020 Compensation Committee Handbook
  6. Supreme Court Is Asked to Weaken the SEC’s Ability to “Make Things Right”: Amici Curiae Brief
  7. CEO Letter to Board Members Concerning 2020 Proxy Voting Agenda
  8. White-Collar and Regulatory Enforcement: What Mattered in 2019 and What to Expect in 2020
  9. Governance of Corporate Insider Equity Trades
  10. Confidential Treatment Applications and SEC Disclosure Guidance
  11. Advance Notice Bylaw and Activists Board Nominees
  12. The Economics of Shareholder Proposal Rules
  13. ISS Comment Letter on Amendments to Exemptions from the Proxy Rules for Proxy Voting Advice
  14. Glass Lewis Comment Letter to the SEC About Proposed Proxy Rules for Proxy Voting Advice
  15. The Economics of Regulating Proxy Advisors

 

Top 15 de Harvard Law School Forum on Corporate Governance au 30 janvier 2020


Voici le compte rendu hebdomadaire du forum de la Harvard Law School sur la gouvernance corporative au 30  janvier 2020.

Cette semaine, j’ai choisi plusieurs billets d’intérêt. C’est normal, car c’est le début de l’année 2020 et il y a plusieurs rapports sur la gouvernance qui sont publiés à la fin du premier mois.

J’ai relevé les quinze principaux billets.

Bonne lecture !

Image associée

 

  1. NACD Public Company Board Governance Survey
  2. Shareholder Activism in 2020: New Risks and Opportunities for Boards
  3. Making Corporate Social Responsibility Pay
  4. SEC Year-End Guidance
  5. Companies’ Anti-Fraternization Policies: Key Considerations
  6. S&P 1500 2019 Bonus Expectations and a Look to 2020
  7. Female Directors in California-Headquartered Public Companies
  8. Sustainability in the Spotlight
  9. ESG Performance and Disclosure: A Cross-Country Analysis
  10. Board Composition and Shareholder Proposals
  11. Challenging Times: The Hardening D&O Insurance Market
  12. Foundational Principles in an Evolving Governance Environment
  13. 2019 Sustainability Report
  14. Audit Committee Perspectives on Audit Quality and Assessment: A PCAOB Report
  15. 2019 Review of Shareholder Activism

 

Compte rendu des activités des actionnaires activistes en 2019


Aujourd’hui, je porte à votre attention une excellente publication de Jim Rossman*, directeur du conseil aux actionnaires, Kathryn Hembree Night, directrice, et Quinn Pitcher, analyste de la firme Lazard, qui présente une revue complète des actionnaires activistes.

Cette étude fait état de l’évolution des activistes en 2019, elle dégage les principales observations des auteurs :

    1. L’activité militante reprend sa tendance pluriannuelle après un record en 2018 ;
    2.  La progression constante de l’activisme en dehors des États-Unis ;
    3. Le nombre record de campagnes liées aux fusions et acquisitions ;
    4. L’influence des activistes sur les conseils d’administration se poursuit,
    5. Les pressions sur les gestionnaires actifs s’intensifient.
    6. Autres observations importantes, dont les suivantes :
    • L’accent ESG continue de croître : au cours des deux dernières années, l’actif géré représenté par les signataires des Principes pour l’investissement responsable des Nations Unies a augmenté de 26 % à 86 milliards de dollars, et le nombre d’actifs dans les FNB liés à l’ESG a augmenté de 300 %.
    • La « Déclaration sur l’objet de la société » de la table ronde des entreprises a souligné l’importance pour les entreprises d’intégrer les intérêts de toutes les parties prenantes, et pas seulement des actionnaires, dans leurs processus décisionnels.
    • Les directives de la SEC sur les conseillers en vote ont cherché à accroître les normes de responsabilité et de surveillance dans les évaluations de leur entreprise.

La publication utilise une infographie très efficace pour illustrer les effets de l’activisme aux États-Unis, mais aussi à l’échelle internationale.

Bonne lecture !

2019 Review of Shareholder Activism

 

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Key Observations on the Activist Environment in 2019

1.  Activist Activity Returns to Multi-Year Trend After Record 2018

187 companies targeted by activists, down 17% from 2018’s record but in line with multi-year average levels

Aggregate capital deployed by activists (~$42bn) reflected a similar dip relative to the ~$60bn+ level of 2017/2018

A record 147 investors launched new campaigns in 2019, including 43 “first timers” with no prior activism history

Elliott and Starboard remained the leading activists, accounting for more than 10% of global campaign activity

 2. Activism’s Continued Influence Outside the U.S.

Activism against non-U.S. targets accounted for ~40% of 2019 activity, up from ~30% in 2015

Multi-year shift driven both by a decline in S. targets and an uptick in activity in Japan and Europe

For the first time, Japan was the most-targeted non-U.S. jurisdiction, with 19 campaigns and $4.5bn in capital deployed in 2019 (both local records)

Overall European activity decreased in 2019 (48 campaigns, down from a record 57 in 2018), driven primarily by 10 fewer campaigns in the K.

Expanded activity in continental Europe—particularly France, Germany and Switzerland—partially offset this decline

3. Record Number of M&A-Related Campaigns

A record 99 campaigns with an M&A-related thesis (accounting for ~47% of all 2019 activity, up from ~35% in prior years) were launched in 2019

As in prior years, there were numerous prominent examples of activists pushing a sale (HP, Caesars) or break-up (Marathon, Sony) or opposing an announced transaction (Occidental, Bristol-Myers Squibb)

The $24.1bn of capital deployed in M&A-related campaigns in 2019 represented ~60% of total capital deployed

The technology sector alone saw $7.0bn put to use in M&A related campaigns

4. Activist Influence on Boards Continues

122 Board seats were won by activists in 2019, in line with the multi-year average [1]

Consistent with recent trends, the majority of Board seats were secured via negotiated settlements (~85% of Board seats)

20% of activist Board seats went to female directors, compared to a rate of 46% for all new S&P 500 director appointees [2]

Activists nominated a record 20 “long slates” seeking to replace a majority of directors in 2019, securing seats in two-thirds (67%) of the situations that have been resolved

5. Outflow Pressure on  Active Managers Intensifies

Actively managed funds saw ~$176bn in net outflows through Q3 2019, compared to ~$105bn in 2018 over the same period

The “Big 3” index funds (BlackRock, Vanguard and State Street) continue to be the primary beneficiaries of passive inflows, collectively owning ~19% of the S&P 500—up from ~16% in 2014

6. Other Noteworthy Observations

ESG focus continues to grow: over the past two years, the AUM represented by signatories to the UN’s Principles for Responsible Investment increased ~26% to ~$86tn, and the number of assets in ESG-related ETFs increased ~300%

The Business Roundtable’s “Statement on the Purpose of the Corporation” emphasized the importance of companies incorporating the interests of all stakeholders, not just shareholders, into their decision-making processes

The SEC’s guidance on proxy advisors sought to increase accountability and oversight standards in their company evaluations

Source:    FactSet, ETFLogic, UN PRI, Simfund, press reports and public filings as of 12/31/2019.
Note: All data is for campaigns conducted globally by activists at companies with market capitalizations greater than $500 million at time of campaign announcement.

               

The complete publication, including Appendix, is available here.

Endnotes

1Represents Board seats won by activists in the respective year, regardless of the year in which the campaign was initiated. (go back)

2According to Spencer Stuart’s 2019 Board Index.(go back)


Jim Rossman* est directeur du conseil aux actionnaires, Kathryn Hembree Night est directrice et Quinn Pitcher est analyste chez Lazard. Cet article est basé sur une publication Lazard. La recherche connexe du programme sur la gouvernance d’entreprise comprend les effets à long terme de l’activisme des fonds spéculatifs  par Lucian Bebchuk, Alon Brav et Wei Jiang (discuté sur le forum  ici ); Danse avec des militants  par Lucian Bebchuk, Alon Brav, Wei Jiang et Thomas Keusch (discuté sur le forum  ici ); et  qui saigne quand les loups mordent? A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System  par Leo E. Strine, Jr.

La montée de l’activisme des stakeholders : Défis et opportunités pour les administrateurs de sociétés


Voici un excellent article de James E. Langston*, associé de la firme Cleary Gottlieb Steen & Hamilton, sur les nouvelles perspectives offertes par les activités activistes de tout ordre. Cet article a paru sur le site de Harvard Law School on Corporate Governance.

Les points saillants exposés par l’auteur dans cet article sont les suivants :

    • Les activités activistes sont moins orientées vers le profit à court terme ; les investisseurs sont toujours préoccupés par les résultats à court terme, mais ils adoptent également une vision de plus en plus à long terme ;
    • On observe la montée d’une nouvelle forme d’activisme : l’activisme des parties prenantes (stakeholders), ou activisme social, qui emprunte aux méthodes de l’activisme traditionnel pour avancer leurs causes. On parle ici des fonds de pension, des gestionnaires d’actifs et des organisations à but charitables ;
    • Également, on note l’accroissement des activités d’activisme uniquement à long terme. Ces parties prenantes exercent de plus en plus de pression activiste auprès des administrateurs des CA ;
    • Dans le cas des très grandes entreprises, les conseils d’administration et les directions générales sont plus ouverts à des arrangements de gré à gré pour effectuer les changements réclamés par les activistes. Cependant, cette pause dans les relations entre ces deux entités n’est pas une garantie qu’elle ne sera pas suivie de nouvelles demandes toujours plus contraignantes pour les sociétés ;
    • Enfin, le développement de l’activisme continue de prendre de l’ampleur dans les marchés internationaux, en adoptant le modèle et les manières de faire des activistes américains ;

Les auteurs incitent les conseils d’administration à être très vigilants dans l’évaluation des nouveaux risques de gouvernance ainsi que dans la prise en compte des nouvelles occasions qui se présentent.

En tant qu’administrateur, je vous invite à lire cet article pour vous sensibiliser à la nouvelle donne.

Bonne lecture !

Shareholder Activism in 2020: New Risks and Opportunities for Boards

 

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The era of stakeholder governance and corporations with a purpose beyond profits is taking hold, with corporate directors expected to answer to more constituencies and shoulder a greater burden than ever before. At the same time, investors—both in the US and abroad—continue to expect corporations to deliver superior financial performance over both the short and long term.

This convergence of purpose and performance will not only shape discussions in the boardroom, but also the complexion of shareholder activism. As the nature of the activist threat has evolved it has created additional obstacles for directors to navigate. But at the same time, this environment has created additional opportunities for boards to level the activist playing field and lead investors and other stakeholders into this new era.

Environmental, Social and Corporate Activism

Today, shareholder activists and governance gadflies are not the only constituencies using the corporate machinery to advocate for change. Social activists and institutional investors are increasingly joining forces and borrowing tactics from the shareholder activist playbook, particularly as they push for ESG reforms. For example, in 2019, prominent pension funds, asset managers and other charitable organizations sent a joint letter to all Fortune 500 companies calling for greater disclosure of mid-level worker pay practices. In addition, the Interfaith Center for Corporate Responsibility—on behalf of over 100 investors—spearheaded the submission of more than 10 shareholder proposals focusing on environmental and labor issues for the annual meeting of a single corporation.

We expect this type of stakeholder activism—or the convergence of shareholder activism and social activism—to continue and eventually move beyond the ESG realm. Although this marks yet another trend that boards must be prepared to face, it also offers directors an opportunity to embrace stakeholder interests other than EPS accretion or margin expansion to support the company’s governance profile and long-term strategic plan. To be sure, financial performance of the corporation over the long term, which benefits all stakeholders, will remain paramount, but focusing on the merits of the strategic plan for all stakeholders should help the board ensure management has sufficient runway to implement that plan and garner the support of more, rather than fewer, corporate constituencies along the way.

Long-Only Activism

At the same time, activism by traditional long-only investors also has increased. For example, Neuberger Berman pushed for board refreshment at Ashland Global as part of a Cruiser Capital-led campaign and launched a short-slate proxy contest at Verint Systems that settled when the company agreed to refresh its board and enhance its investor disclosures. Wellington Management also joined the fray, publicly backing—and by some accounts initiating—Starboard’s efforts to scuttle the Bristol Myers/Celgene merger. And T. Rowe Price doubled down on its activism efforts by publicly backing the Rice Brothers’ successful campaign to take control of the EQT board.

The takeaway for directors from this sort of activism is clear – no longer will institutional investors be content to sit on the sidelines or express their views privately. Directors should expect that increased long-only activism will create a challenging environment for active managers (including continued pressure on management fees) and will likely lead more of them to embrace activism, and to do so more publicly, as a way to differentiate their investment strategy.

The question for boards in this new environment is not just whether institutional investors will be a source of ideas for an activist or side with the board or the activist in the event of a campaign, but also whether its institutional investors are likely to themselves “go activist.” Shareholder engagement efforts will continue to be crucial in building support for a strategic plan and counteracting activist tendencies among long-only investors. But in the course of such efforts, directors must be mindful of the fact that not all institutional investors will have the same objectives and be careful to structure their interactions with investors accordingly. Well-advised boards will look for ways to find common ground with long-only investors while articulating the company’s long-term strategy in a manner that emphasizes its corporate purpose and is more likely to resonate with all stakeholders.

Large-Cap Activism and Settlement Agreements

Another trend boards must be aware of in 2020 is the success of certain brand-name activists in “settling” large-cap campaigns without committing to a settlement agreement with a standstill undertaking. Typically, a standstill, preventing the activist from exerting pressure on the company for a certain period of time, is the price the activist pays for the company committing to take certain of the steps proposed by the activist. The standstill is intended to ensure that the company has the breathing room necessary to implement the agreed-upon changes and make its case to investors.

However, several recent large-cap activist situations followed a different script. The companies engaged with the activists and announced a series of changes designed to appease the activist, ranging from purported governance and operational enhancements to full-blown strategic reviews. The activist then issued a separate, choreographed press release, often taking much of the credit for the changes and promising to work with the company to bring about the proposed changes. But that was it—there was no settlement agreement or other commitment by the activist to cease its efforts to influence the board.

Not surprisingly, in at least one of these situations, the company “settled” with an activist without a standstill only to face additional demands from the same activist several months later (and which required additional concessions). As always, the terms of peace with an activist will be shaped by the situational dynamics, but as 2020 dawns, directors should continue to be mindful of the benefits of a standstill.

Activism Abroad

Shareholder activism also continues to expand globally. Boards in Europe and Asia are increasingly finding themselves under pressure from activists. In these situations, boards have faced not only home-grown activists, but also US activists looking to expand their influence and investor base abroad.

We expect this trend to accelerate in 2020 for several reasons:

    • The number of easy activist targets in the US has dwindled.
    • US-based index funds continue to consolidate their ownership of public companies across the globe.
    • Foreign investors are becoming more prone to expect US-style capital allocation policies and shareholder return metrics from non-US companies.

The message to non-US boards is clear: If you aren’t thinking about activism, you should be. This doesn’t mean foreign issuers should reflexively adopt US practices; they shouldn’t. But it does mean that non-US boards should ensure they are prepared to deal with an activist event and consider a strategy that not only takes into account local conditions but also is informed by the relevant lessons from the US experience with shareholder activism.


*James E. Langston is partner at Cleary Gottlieb Steen & Hamilton LLP. This post is based on his Cleary memorandum. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here); Who Bleeds When the Wolves Bite? A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System by Leo E. Strine, Jr. (discussed on the Forum here); Dancing with Activists by Lucian Bebchuk, Alon Brav, Wei Jiang, and Thomas Keusch (discussed on the Forum here); and Social Responsibility Resolutions by Scott Hirst (discussed on the Forum here).

Top 10 de Harvard Law School Forum on Corporate Governance au 16 janvier 2020


Voici le compte rendu hebdomadaire du forum de la Harvard Law School sur la gouvernance corporative au 16  janvier 2020.

Comme à l’habitude, j’ai relevé les dix principaux billets.

Bonne lecture !

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Top 10 de Harvard Law School Forum on Corporate Governance au 3 janvier 2020


Voici le compte rendu hebdomadaire du forum de la Harvard Law School sur la gouvernance corporative au 3 janvier 2020.

Je profite de l’occasion pour vous souhaiter une formidable année 2020 et la mise en place de pratiques exemplaires de gouvernance.

Comme à l’habitude, j’ai relevé les dix principaux billets.

Bonne lecture !

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