Briefing: Governance

Current topics in corporate governance, securities law and executive compensation

State Street Global Advisors, or SSGA, updated and released earlier this week its Global Proxy Voting and Engagement Principles and Proxy Voting and Engagement Guidelines – North America (US & Canada). SSGA has created a new set of global policies dedicated to what companies can expect when engaging with SSGA on environmental and social matters and how SSGA intends to approach voting on sustainability-related proposals. In addition, SSGA recently published its latest general issuer
At the 18th Annual Institute on Securities Regulation in Europe last week, SEC Director Bill Hinman spoke about the benefits of the SEC’s current, flexible approach to environmental, social and governance (ESG) disclosure for public companies. He noted that current disclosure requirements are largely principles-based and “apply in areas where the disclosure topics may be complex, associated with uncertain risks and rapidly evolving.” Such an adaptable principles-based disclosure regime, Director Hinman posited, is well suited…
Last week the European Parliament and European Union (EU) member states reached a tentative agreement on proposed legislation that would set standards for low-carbon benchmarks in the EU. In financial markets, a benchmark is essentially an index, or a standard or measure pegged to the value of a “basket” of underlying equities, bonds or other assets or prices, that is used for a variety of investment purposes, such as evaluating the performance of a security,…
Last week, the UN Principles for Responsible Investment (PRI), the largest investor network focused on sustainable investing, challenged its over 2,250 signatories to step up their financial reporting when it announced that, beginning in 2020, all signatories will be required to report on climate change risks. PRI requires signatories, which include international asset owners, investment managers, and service providers that collectively manage over $83 trillion in assets, to report various environmental, social, and governance…
We’ve written previously about Climate Action 100+, an investor led group representing over $32 trillion in assets under management, and its campaign against 161 or so of the largest publicly traded companies seeking to have these companies improve their greenhouse gas emitting practices. Climate Action 100+ has experienced recent successes in its engagement efforts with a few companies, the details of which are available on its website.  In particular, a few companies have agreed…
State Street’s letter to board members advises companies that this year they intends to focus on corporate culture as one of many key intangible value drivers.  Through engagement, they have found that “few directors can adequately articulate their company’s culture or demonstrate how they assess, monitor and influence change when necessary.” When engaging with directors and management on corporate culture, State Street will expect to understand the following: Can the director(s) articulate the current corporate…
CII has published an update to its analysis of disclosure on board evaluations in proxy statements, highlighting as “Seven Indicators of Strength” a wish list of information. The report contains multiple qualifications and statements designed to reassure companies, including that they are not expected to reveal any specific details about the results of the evaluations, but instead the disclosure should focus on the process for continued improvement.  In addition, the seven benchmarks selected in the…
Fitch Ratings announced on Monday that it has launched a new integrated scoring system that shows how environmental, social and governance (ESG) factors, such as climate change, human rights and labor issues, impact individual credit rating decisions. Its ESG Relevance Scores are sector-based and entity-specific. Fitch has started with over 1,400 non-financial corporate ratings, which it is initially making publicly available at www.fitchratings.com/site/esg.  In contrast to other third-party ESG ratings available in the market…
At the very end of the year, the SEC announced the entry of an administrative order instituting cease-and-desist proceedings in connection with financial reporting at a major rental car company, including earnings guidance. According to the order, “under persistent pressure to meet budgets, and to generate opportunities to help close company-wide budget gaps or revenue shortfalls,” the company did not comply with GAAP in 2012 in accounting for contingencies, particularly in determining when to increase…
The SEC instituted a cease-and-desist proceeding in a fairly straightforward enforcement action that nonetheless emphasizes the importance of the requirement that GAAP measures must be provided with “equal or greater prominence” when a company discloses non-GAAP measures. The SEC found that a company provided non-GAAP financial measures, such as adjusted EBITDA, adjusted net income and free cash flow before special items, without giving equal or greater prominence to the comparable GAAP measures. In the headline…