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04/07/20 [UPDATED] ESG

NEW:  Wachtell discusses Environmental, Social, and Governance-related scenario analysis disclosures and the need to take precautions to ensure that such disclosures are not misleading, providing examples of such disclosures in ESG Disclosures and Litigation Concerns.

Schulte Roth & Zabel discusses the EU regulation on Sustainability-Related Disclosures, scheduled to take effect in March 2021, and related legislation that establishes a framework for classifying financial products as “sustainable investments,” in New ESG Disclosure Obligations.

Is Managerial Entrenchment Always Bad and Corporate Social Responsibility Always Good? examines simultaneous adoption of managerial entrenchment and corporate social responsibility governance provisions, finding evidence that in the absence of entrenchment provisions, market discipline reduces managers’ incentives to invest in long-term relationships with stakeholders and increases incentives to spend company resources generously on symbolic CSR activities.

ShareAction explores the role and influence of proxy advisors, analyzing their recommendations on Environmental, Social, & Governance shareholder resolutions compared to asset managers’ voting decisions in Another Link in the Chain: Uncovering the Role of Proxy Advisors in Investor ESG Voting.

Wachtell responds to The Illusory Promise of Stakeholder Governance — a critical analysis of stakeholder primacy proposed in the Business Roundtable’s 2019 Statement that questions its efficacy and warns against its adoption — in Professor Bebchuk’s Errant Attack on Stakeholder Governance.

Cooley discusses a recent report by Morningstar — Proxy Voting by 50 U.S. Fund Families — on institutional investor voting on Environmental, Social, and Governance-related proposals, noting that support has increased over a five-year period but the largest funds have consistently voted against such proposals in How do the largest fund families vote on shareholder proposals related to ESG?

The Illusory Promise of Stakeholder Governance critically examines stakeholder primacy proposed in the Business Roundtable’s 2019 Statement, distinguishing between two versions of “stakeholderism” — “enlightened shareholder value” and “pluralistic” — and conducts economic and empirical analyses of their expected consequences, concluding that stakeholderism will not benefit stakeholders, but would impose substantial costs on shareholders, stakeholders, and society (disagreeing with academics signatories of the Corporate Governance for Sustainability Statement).

NEW: Wachtell discusses board legal obligations, and adjustment to board functions, communications, and engagement in response to increasing investor concern over Environmental, Social, & Governance, stakeholder interests, and sustainable long-term investment strategies in Spotlight on Boards.

NEW: FTI Consulting discusses issues of likely importance to companies in connection with anticipated adoption of Environmental, Social, & Governance-related practices in Top 10 ESG Trends for the New Decade.

Wachtell discusses the relevance of corporate income tax to Environmental, Social, and Governance disclosure, noting the likelihood of tax arbitrage — shifting profit among jurisdictions — as a focus, and possible governance risks that may arise in response to aggressive tax planning in Tax and ESG.

Morrow Sodali’s John Wilcox discusses approaches to defining corporate purpose and corporate culture in the evolving governance environment that increasingly emphasizes Environmental, Social, and Governance, sustainability, and stakeholder interests in Corporate Purpose and Culture.

Wachtell suggests that Environmental, Social, and Governance considerations will increasingly impact M&A activity, discussing their relevance to due diligence and communications regarding transactions, as well as differential concerns between acquirer and target concerns, and the relationship between ESG performance and cost of capital in The Coming Impact of ESG on M&A.

Stewardship and Collective Action: The Australian Experience discusses collective action of investors in promoting corporate stewardship utilizing Australian stewardship codes, and suggests considerations for development of policy guiding investor participation in corporate governance in other jurisdictions.

Eric Scheiner and Jennifer Quinn Broda of Kennedys discuss risks that companies may assume in efforts to satisfy or failure to meet corporate social responsibility objectives having potential implications for D&O insurers and policyholders in Potential D&O Risks Arising from Corporate Social Responsibility.

Wachtell discusses BlackRock’s recent announcements regarding its commitment to sustainability as a key focus of its investment strategy in Sustainability in the Spotlight.

The CFA Institute discusses the results of surveys addressing how finance professionals and investors believe investments can support environmental, social, and governance objectives without undermining their monetary value in Sustainable Value for Money: How to reconnect finance with the needs of society.

McKinsey discusses socioeconomic risks attributable to climate change, and considerations for companies and governments Integrating climate risk into decision-making in Climate risk and response: Physical hazards and socioeconomic impacts.

Cooley discusses a McKinsey study of the economic effects of climate change as a possible impetus supporting increased focus of financial investors on issues of sustainability in McKinsey looks at socioeconomic impact of climate risk.

BlackRock discusses the ways in which it is accelerating integration of sustainability into technology, risk management, and investment in Sustainability as New Standard for Investing.

Cooley discusses BlackRock’s recent announcements regarding its commitment to sustainability as a key focus of its investment strategy in BlackRock puts sustainability at the center of investment strategy, expects more transparency in sustainability disclosure.

BlackRock discusses the economic consequences of climate change and its commitment to making sustainability the center of its investment strategy in A Fundamental Reshaping of Finance.

The Role of ESG in the Financial Performance of Banks finds a positive correlation between the return on assets and Environmental, Social, & Governance performance for European banks.

ISS discusses the link between Environmental, Social, & Governance performance and financial performance, presenting evidence that firms with favorable ESG performance ratings are more profitable, less volatile, good allocators of capital, and less cyclical, in ESG Matters.

Morningstar discusses “encouraging” findings from proxy votes of large asset managers in 2019 demonstrating support for shareholder-proposed sustainability resolutions, while noting that the largest fund providers were significantly less supportive of such resolutions, in How Can Fund Providers Protect the Future for Worker-Investors?

State Street discusses the results of a global survey of Environmental, Social, & Governance investing, noting factors affecting adoption and barriers to adoption of ESG factors by institutional investors Into the Mainstream: ESG at the Tipping Point.

04/06/20 [UPDATED] Poison Pills

NEW:  Cleary Gottlieb notes the uniquely threatening nature of current depressed market conditions for unsolicited acquisition or activist agitation, suggesting defensive measured including implementation of “on the shelf” poison pills in Rewriting the Poison Pill Prescription: Consider Active Defenses During COVID-19.

Wachtell, well-known as the creator of the stockholder rights plan popularly known as the “poison pill,” discusses the possible desirability of adopting an “on the shelf” plan in view of recent declines in equity value Rights Plans (“Poison Pills”) in the COVID-19 Environment — On the Shelf and Ready to Go.

Gibson Dunn notes activist accumulation of stakes in publicly traded companies during recent declines in stock prices, and suggests that boards and advisors consider implementation of a stockholder rights plan in Reconsidering Poison Pills.

Davis Polk suggests that, in light of severely depressed stock prices, companies prepare for the possibility of a hostile campaign with an “on the shelf” poison pill ready for adoption in Should companies play strong defense in these hostile times?

Akin Gump discusses adoption of poison pills to deter exploitation of recent declines in stock prices by hostile bidders and activists in Preserving Stockholder Value in a Volatile Market.

Morgan Lewis discusses the potential utility of takeover defense or Net Operating Loss poison pills given extreme drops in market capitalization, noting the prevalent use of such measures during the 2008-2009 financial crisis in As COVID-19 Disrupts Financial Markets, is it Time to Consider a Poison Pill?

Boston College’s Professor Brian JM Quinn discusses the “shadow pill” — a company’s ability to adopt a stockholder rights plan at any time — in the context of bargaining between Hewlett Packard and Xerox in The Shadow Pill is a Powerful Thing.

The Consequences to Directors of Deploying Poison Pills examines career outcomes for directors on boards that adopt poison pills, and whether pills have negative, positive, or inconsequential effects on firms that adopt them.

03/30/20 [UPDATED] Duty of Oversight

NEW: Kaplan & Walker discusses recent Delaware decisions addressing board oversight of compliance systems, noting the particular need of attention in high-risk and highly-regulated industries in Insights from the Delaware courts on board oversight of compliance programs.

Sheppard Mullin discusses recent Delaware caselaw involving the duty of oversight, noting directors’ obligations to inform themselves of fundamental business issues impacted by the coronavirus pandemic in  COVID-19 Directors’ Duties of Oversight: Reporting and Monitoring.

Akerman discusses recent Delaware case law and trends in federal regulation involving oversight of legal, ethical, and reputational risks, illustrating that boards can be held legally accountable for oversight failures.

Drinker Biddle discusses recent Delaware decisions involving claims for breach of the duty of oversight under Caremark, and suggests steps that corporate directors can take to help protect themselves from oversight liability in They Had One Job.

Foley & Lardner discusses takeaways from recent Delaware decisions addressing the duty of oversight under Caremark, presented as relevant specifically to directors and officers of health care providers, in Health Care Provider Director and Officer Liability: Important Takeaways from Clovis and Marchand.

McDermott Will & Emery’s Michael Peregrine discusses the recent release of former WorldCom CEO Ebbers from prison, noting aspects of Ebbers’ conscious marginalization of WorldCom in-house counsel as part of the conduct that led to his conviction, as relevant to duty of oversight concerns raised in recent Delaware case law in Bernie Ebbers’ and Board Oversight of the Office of Legal Affairs.

Corporate Oversight and Disobedience discusses the duty of oversight in connection with the obligation of obedience, under 8 Del. C. § 101(b), which requires that corporations serve a lawful purpose.

McDermott Will & Emery proposes a plan of action for corporate boards responsive to recent Delaware case law addressing the duty of oversight under Caremark in The Board’s Marchand/Clovis Reaction Plan.

Richards Layton & Finger discusses the nature and scope of directors’ duty of oversight under recent Delaware case law in What Is Oversight? Del. Courts Continue to Provide Clarification Post-‘Marchand’. discusses directors’ duties with respect to environmental, social, and governance risk in relation to recent Delaware Court decisions involving the duty of oversight under Caremark in ESG and Mission-Critical Issues for Director & Officer Liability.

Davis Polk discusses recent decisions of the Delaware Court of Chancery addressing the duty of oversight in Recent Delaware Cases Reinforce Director Accountability for Risk Oversight.

Wachtell summarizes emerging and recent developments involving the duty of oversight, including recent Delaware case law, the importance of engaged board oversight of corporate risk, and the record of such oversight, presented in Risk Management and the Board of Directors (WLRK November 2019), in Risk Management and the Board of Directors.

[$$$] Bloomberg Law discusses recent decisions of the Delaware Court of Chancery addressing Caremarkclaims in Corporate Boards May Face Higher Legal Hurdle in Risk Oversight.

Boston College Professor Brian JM Quinn notes that recent case law addressing Caremark claims has changed his view of the likelihood that duty of oversight claims involving Boeing’s 737 Max, asserted in Kirby Family Partnership, LP v. Dennis Muilenburg, et al. and Boeing Co., C.A. No. 2019-0907-, compl. (Del Ch. Nov. 8, 2019; red. Nov. 18, 2019), could survive a motion to dismiss.

Paul Weiss discusses recent decisions of the Delaware Court of Chancery addressing Caremark claims in Recent Delaware Decisions Signal Renewed Focus on Board Level Compliance Oversight.

03/11/20 [UPDATED] Board Governance

NEW:  Cooley discusses considerations regarding whether CEOs should continue to serve on corporate boards after they step down from their chief executive positions in From “Who’s Who to who’s he” — should a former CEO stay on the board?

Monitoring the Monitor: Distracted Institutional Investors and Board Governance examines whether monitoring by institutional investors affects director behavior, finding evidence that institutional investor monitoring on a regular basis significantly improves director incentives to monitor management.

Ernst & Young discusses insights from its Strategy and Innovation Board Summit the summit for directors in Leading Boards Rethinking Strategy and Enabling Innovation.

NEW: Weil Gotshal discusses a framework for board self-assessment in Strengthening the Board’s Effectiveness in 2020: A Framework for Board Evaluations.

NEW: The National Association of Corporate Directors provides an overview of overview of business and governance issues likely to demand board focus in the coming year in 2020 Governance Outlook: Projections On Emerging Board Matters.

Wachtell discusses principles that guide directors’ responsibilities in view of a corporate governance environment that has begun to emphasize stakeholder interests, Environmental, Social and Governance factors, and corporate sustainability, in Foundational Principles in an Evolving Governance Environment.

The National Association of Corporate Directors discusses current governance trends abd topics that may confront corporate boards in 2019-2020 NACD Public Company Board Governance Survey.

Deloitte discusses matters issues expected to occupy board attention in 2020 in The 2020 Boardroom Agenda.

Russel Reynolds observes that environmental and social issues are taking precedence as matters of interest to investors on a global basis, and that corporate boards will be expected to strengthen their oversight and knowledge of such issues in 2020 Global and Regional Corporate Governance Trends.

Akin Gump discusses its choices for top 10 topics for corporate directors in 2020 in Top 10 Topics for Directors in 2020.

Ernst & Young discusses economic, geopolitical, technology and social challenges corporate directors are likely to confront during the coming year in Eight Priorities for Boards in 2020.

Cleary Gottlieb discusses significant and emerging issues in view of changing political, legal, and social climates, including environmental, social and governance concerns; pressure from institutional investors and social activists in addition to “traditional” activists; technological disruption; and antitrust, among more conventional financial, regulatory, and compliance concerns, in Selected Issues for Boards of Directors in 2020.

03/10/20 Corporate Officers

Can Socially Responsible CEOs Find Better Jobs? investigates the relationship between firm social performance and CEOs’ job market opportunities, finding CEOs leaving firms with strong Corporate Social Responsibility performance more likely to be hired by another firm, which is more likely a public firm, larger in size, with higher compensation, and with a shorter gap in employment than CEOs leaving firms with weak social performance.

03/09/20 [UPDATED] Controlling Stockholders

NEW:  Why Controlling Shareholders Are Not Fiduciaries argues that Delaware corporate law’s imposition of fiduciary duties on majority stockholders is conceptually flawed, and that recognition of a remedy for shareholder oppression would permit more limited, flexible corrective intervention.

Tulane Law’s Professor Ann Lipton discusses the trend in Delaware fiduciary duty case law that increasingly considers corporate control, and increasingly finds that minority stockholders may be controllers, in A study in evolution.

Controlling Shareholders in the Twenty-First Century: Complicating Corporate Governance Beyond Agency Costs discusses a rise in concentration of corporate ownership, which is contrary to predictions of more diverse ownership prevalent twenty years ago.

03/06/20 [UPDATED] Executive Compensation

NEW:  Executive Pay for Luck: New Evidence Over the Last 20 Years discusses the concept of “pay for luck,” a theory of executive rent extraction, in view of recent data showing increase in median CEO compensation accompanied by decreases in median stockholder returns, and based on data covering the last 20 years, conclude regulations intended to rebalance performance and pay by encouraging greater oversight of executive compensation were successful, and significant decreases in pay for luck among companies that have adopted intensive Compensation Discussion & Analysis disclosures.

Willis Towers Watson reports that the use of retention requirements precluding corporate executives from selling equity awarded under incentive plans immediately upon vesting has nearly doubled over the past decade in CEO Stock Incentives Increasingly Tied to Stock Ownership and Retention.

Are CEOs Encouraged to Take Too Much Risk? investigates the relationship between CEO compensation is related to health and safety violations, non-compliance with labor laws, and other workforce-related violations, finding evidence suggesting that CEO risk-taking incentives are positively related to the frequency and the severity of workplace violations.

02/17/20 Debt Covenants

Managerial Optimism and Debt Covenants examines the allocation of control between entrepreneurs and investors through debt covenants that transfer control rights to lenders when a company’s financial performance fails to achieve established thresholds as a means of balancing against managerial over-optimism.

02/17/20 [UPDATED] Disclosures

NEW:  Reuters reports that a study of corporate disclosures on management of social and environmental risk required under the European Union’s 2018 Non-Financial Reporting Directive revealed “big gaps between many companies’ words and action,” in Sustainability disclosures by European companies generally poor: study.

ESG Performance and Disclosure: A Cross-Country Analysis examines the relationship between ESG factors, disclosure, and financial performance across countries with varying policies imposing ESG disclosure requirements, finding correlation between quantity of disclosures and quality of data, and no relationship between ESG and risk-adjusted returns, but a small effect on volatility.

The U.S. Chamber of Commerce discusses proposed guidelines for Environmental, Social & Governance disclosures in ESG Reporting Best Practices.

Ernst & Young discusses corporate disclosures relating to human capital and culture in How and Why Human Capital Disclosures are Evolving.

Davis Polk discusses best practice guidelines for Environmental, Social & Governance disclosures proposed by the U.S. Chamber of Commerce. Chamber of Commerce Releases Best Practices for Voluntary Environmental, Social & Governance (ESG) Disclosure.