Directors' Cut Library

PwC’s “Audit committee effectiveness: practical tips for the chair” provides guidance for the audit committee chair as respects committee organization and process, as well as the board and the Nom/Gov Committee to inform their director selection, board committee composition, and committee succession responsibilities. The guide includes links to other checklists, samples, and guidance throughout, and a sample annual audit committee meeting calendar in the appendix.

Deloitte and the Center for Audit Quality released this Audit Committee Practices Report based on a recent survey of 164 predominantly US-based and public company audit committee chairs and members. Among other takeaways: 53% of audit committees represented by respondents reported primary oversight for cybersecurity and ethics and compliance, and nearly half assume primary responsibility for data privacy and security oversight.

The CAQ’s “Jumpstart Your Digital Assets Journey” is aimed at bringing audit committees up to speed on the benefits and risks associated with corporate use of digital assets and attendant accounting and financial reporting and other oversight considerations. The resource also summarizes the current digital assets regulatory environment and suggests a list of questions for audit committees to address with management and the auditors regarding the company’s digital assets.

In the context of increasing reliance by auditors on other accounting firms and individual accountants whose quality control and independence standards may be inadequate, SEC Chief Accountant Paul Munter provided good practice guidance to auditors and audit committees to effect their “other auditor” supervision and oversight responsibilities, respectively.

KPMG’s report (page11) revealed noteworthy board racial/ethnic and LGBTQ diversity disclosure statistics and trends as of August 2022.

Deloitte’s article addresses the reality of unconscious biases having the potential to significantly influence perceptions and decision-making in the board search process. Left unchecked, board diversity initiatives may be impeded notwithstanding other well-intentioned processes and practices aimed at supporting board diversity. The article provides an overview of several common manifestations of unconscious biases and suggests how they may be mitigated.

ISS reported significant upticks in racial and ethnic diversity on Russell 3000 boards over the four-year period January 1, 2019, through January 1, 2023.

Heidrick & Struggles' annual "Board Monitor" revealed—among other things—a retraction in 2022 from the prior years’ record-breaking increases in first-time directors, women directors, and directors from underrepresented groups, to a more traditional director profile, across Fortune 500 boards. See the key takeaways.

This report from the African American Directors Forum and KPMG reveals noteworthy progress on the representation by African Americans on public Fortune 1000 boards, particularly since the onset of the racial justice movement in 2020.

Argyle’s report shares select institutional investor and proxy advisor policies, “best practice” guidance, and sample disclosures on board and workforce diversity and pay equity, from recent CSR, ESG, and similar reports across industries. 

The Society and certain other organizations have long maintained listings of reputable, established director/board education program offerings. The latest Society listing, which was most recently updated in January, is here. See also these resources from Gibson Dunn and Woodruff Sawyer.

In this post from the Harvard Business Review, seasoned leadership consulting executives suggest a series of basic questions that boards should discuss and reach consensus on in advance of embarking on a new board chair/lead director search.

Wachtell Lipton's “Compensation Committee Guide" provides an overview of the key duties, laws, rules, regulations, and standards applicable to listed company compensation committees and compensation-related disclosures; compensation methods and types and associated legal considerations; shareholder and shareholder-related proposals & developments; suggested compensation committee practices; and more. A model compensation committee charter, which also suggests provisions for committees with broad management development and culture responsibilities, is included as an exhibit for reference and/or tailoring to company-specific facts and circumstances.

T30% of respondents to Georgeson’s  institutional investor survey indicated they will vote against companies that don’t incorporate ESG metrics into their executive incentive plans; however, half said they would not, and another 20% indicated they would consider this issue on a case-by-case basis.

“What Boards Should Ask Management About Compensation and ESG” from The Conference Board provides guidance to companies on whether and how to link executive or employee pay to ESG metrics in the form of five questions that should be asked and satisfactorily addressed before jumping on the ESG-pay bandwagon.

WTW’s report includes a plethora of data on the use of ESG metrics in executive incentive plans based on 2022 public disclosures.

For those considering the incorporation of ESG metrics into their incentive compensation plans, Semler Brossy’s “Design Thoughtful Scorecards for ESG Measures in Incentive Plans” explains potential benefits of developing an ESG and incentive plan scorecard; suggests relevant considerations; and provides two large company examples.

ISS benchmarked the use of stand-alone environmental and social (predominantly, safety) metrics in short-term incentive programs among the 21 S&P 500 companies in the Energy sector.

Society public company members across sizes and industries responding to a recent Society / Deloitte Board Practices Quarterly survey on board composition and refreshment provided insights on their director recruitment priorities and refreshment practices. See the key takeaways and results by company size.

Wilson Sonsini’s report benchmarked numerous corporate governance practices and trends among the 150 largest Silicon Valley companies—largely concentrated in the technology and life sciences industries.

Fenwick’s annual survey benchmarked and compared numerous corporate governance practices and trends among the S&P 100 and the 150 largest (by revenue) Silicon Valley technology and life sciences companies.

Among the takeaways from Corporate Board Member and Diligent Institute’s annual "What Directors Think" survey: The core business objectives of revenue growth and increased profitability top boards’ near-term priorities and nearly two-thirds of directors expect their companies to focus on cost containment in 2023-24, far exceeding their likely focus on other strategies such as M&A, price increases, and debt reduction. See additional key takeaways here and here. Navigate the report online by topic here. | [03/08/23] - The NACD reported key findings from its 2023 Board Trends and Priorities Survey of more than 300 directors fielded in late 2022. Among the takeaways: 74% of respondents believe that their board has the right composition to support the shifting needs of the business in the next few years and a majority of respondents believe their board has sufficient capacity and expertise to oversee emerging geopolitical, cybersecurity, and climate risks.

Among other takeaways, nearly 70% of 464 public and 279 private company directors responding to Spencer Stuart’s pulse survey identified long-term strategy/performance as a topic needing more discussion time in the boardroom—leading other enumerated topics such as talent/human capital and CEO succession—by a wide margin. On the flip side, more than 25% of respondents identified activism and ESG as needing less discussion time, trumping other topics including DE&I, short-term strategy/performance, and geopolitical issues.

Cleary Gottlieb’s memo suggests an approach for public companies to navigate societal and political controversies that lies somewhere between taking a uniform conservative, liberal, or centrist stance that permeates the business strategy and operations on the one hand, and effectively ignoring current social and political issues entirely on the other. The memo provides guidance on how to implement the suggested mid-tier approach, which is grounded in fiduciary duties with due regard for current social and political events in the context of the company’s business.

A survey of 2,000 Millennials (ages 26 to 41) and Gen Zs (ages 18 to 26) indicates that younger workers value—by a large margin—salary and benefits, more than flexibility, opportunities for career advancement, or the employer’s involvement in social issues. Further, a majority believe individuals should keep their personal views on social issues out of the workplace and that wealthy business leaders should look to voters and the government (rather than business itself) to solve social issues.

Covington’s memo provides guidance to companies on how to reduce the likelihood of being targeted with a political contributions / lobbying shareholder proposal and how to respond in the event such a proposal is received. The firm identifies potential risks to the company associated with simply capitulating (under pressure) to overly burdensome or intrusive demands, and provides a good example of how this may play out with reference to one of the tenets of the CPA’s Model Code of Conduct.

Mayer Brown’s “Dealing with Director Overload” suggests a framework for prioritizing an increasingly expansive board agenda that encompasses traditional oversight responsibilities, as well as evolving demands and expectations.

Explaining why share buybacks are neither always good, nor always bad, in the context of often negative and nonfactual political discourse, Mayer Brown’s memo encourages directors to stay the course in considering share repurchases under appropriate circumstances as part of a sound overall capital allocation strategy.

Perkins Coie’s memo provides guidance to directors on how to operationalize the DOJ’s consideration of personal device and third-party messaging platform policies and procedures in their evaluation of companies’ compliance programs, which was among the significant takeaways from the changes to the DOJ’s corporate criminal enforcement policies announced in September 2022.

Based on a late 2022 worldwide survey of nearly 1,860 ethics, compliance, and legal professionals worldwide (26% US), LRN’s “2023 Ethics & Compliance Program Effectiveness Report” includes—among many other data points—noteworthy benchmarking data on the role of the board in companies’ ethics and compliance programs.

According to Spencer Stuart’s review of 2022 CEO successions, nearly half of CEOs remained in the board chair role upon stepping down from the CEO position, compared to nearly two-thirds in 2021 and just 38% in 2020. The firm notes that outgoing CEOs are more likely to stay on as board chair if their successor is internally promoted and as a result of a planned succession process. More than 80% of CEO successors were promoted from within.

Morrison & Foerster’s memo summarizes the new DGCL amendment that allows for the exculpation of officers via a charter amendment; identifies potential economic benefits of doing so; and suggests key factors to consider in determining whether to raise this topic to a shareholder vote.

Weil’s memo outlines the factors the Del. Court of Chancery considered in a recent shareholder derivative action on behalf of McDonald’s in determining that the board had adequately considered and responded to signs of alleged pervasive sexual harassment and misconduct at the company. The firm notes the potential precedent-setting nature of the case for purposes of the types of board actions courts may examine in evaluating a company’s defense against similar allegations.

This memo from Mayer Brown defuses the divisive “stakeholder vs. stockholder” debate by noting the significant overlap between directors’ legal duty to shareholders and the promotion of stakeholder interests, which is supported by the flexible corporate legal framework.

EY’s “How boards can prepare for a future in the metaverse” explains what the metaverse means in practical terms and outlines potential opportunities and risks associated with metaverse engagement in the corporate setting. The report suggests factors the board should consider in determining whether—strategically—the company should dabble in metaverse technologies and—if so— how to effectively oversee this area.

Compensia’s post summarizes and explains the potential implications of several qualitative changes to BlackRock’s executive compensation-related proxy voting guidelines for the 2023 proxy season.

According to Bloomberg, in the course of a pre-recorded interview presented at the Oslo Energy Forum, BlackRock’s Larry Fink reiterated the impediments associated with regulatory mandates imposed on public companies to disclose Scope 3 emissions and other specific ESG risks associated with predominantly private company-composed supply chains.

While BlackRock Chair & CEO Larry Fink’s investor letter focused largely on how BlackRock approaches and effects its fiduciary duty to clients to achieve optimal risk-adjusted returns in the context of challenging dynamics, two topics that respond to criticisms as respects BlackRock’s climate-related demands on portfolio companies and institutional investors’ reliance on proxy advisors—highlighted here—are particularly noteworthy for corporates.

BlackRock released its Engagement Priorities and updated commentaries for 2023. Although the priorities are identical to 2022, the narrative and tone have changed—seemingly in acknowledgement of criticisms aimed at BlackRock’s ESG focus and alleged micromanagement / overreach. Similar changes in tenor and text were made on BlackRock’s Investment Stewardship website.

Most of the changes in Vanguard’s 2023 proxy voting policy as compared to 2022  are in the nature of refinements and clarifications, as well as extending board accountability for failures to address enumerated governance concerns from board or committee leaders to relevant directors or committees. See Georgeson’s overview of the changes.

Vanguard’s perspective on contested elections in the wake of the new universal proxy rule affirms its longstanding, principled, case-by-case approach to evaluating director nominees, which considers: (i) whether the dissident makes a compelling case for change in company strategy and board composition; (ii) the company’s approach to corporate governance as demonstrated by good governance practices and disclosure; and (iii) the director nominees’ overall qualifications and alignment with corporate strategy.

Vanguard’s approach to climate risk governance reaffirms its commitment to focusing on company-specific material risks (climate or otherwise) that have the potential to undermine long-term shareholder value. For those companies confronted with material climate-related risks, the piece outlines Vanguard’s expectations for boards in relation to overall board competence, risk oversight and mitigation, and disclosure oversight. The piece also includes illustrative board climate oversight engagement questions.

AllianceBernstein posted its updated "Proxy Voting and Governance Policy" for the 2023 proxy season. Notably, AB is generally unsupportive of say on climate shareholder proposals.

In preparation for its March Investment Committee meeting, CalPERS released its "Proxy Voting and Corporate Engagements Update," which highlights its progress and plans vis-a-vis portfolio companies on executive compensation, board diversity, climate change, and investor rights.

Calvert’s updated proxy voting guidelines feature more stringent board diversity requirements (p6). According to its blog, Calvert expects to vote against most Nominating Committee Chairs “over the next few years” while boards evolve to meet its new standards.

Georgeson summarized salient updates to Fidelity’s 2023 proxy voting guidelines. In addition to changes that reflect a focus on company-specific financial materiality and long-term shareholder value, coupled with a retreat from the prior year’s more ESG-centric approach, the 2023 guidelines include (among other things) a new framework for consideration of environmental and social shareholder proposals.

Further to its 2022 Policy on NEO gender diversity, LGIM noted its plans to vote against 79 companies among the FTSE 100 and S&P 500 based on their lack of gender-diverse executive teams. Of the 79 companies, 61 are S&P 500 companies, 45 of which LGIM voted against in the 2022 proxy season for the same reason.

T. Rowe Price's report provides 2022 voting data and associated insights on T. Rowe's approach to proposals across a number of key topics including environmental (and climate, specifically), social, and political spending / lobbying, as well as anti-nuclear power and anti-ESG proposals, in addition to its instructive voting decision-making framework, which considers, among other factors, whether a particular proposal’s ask is properly targeted at companies or by shareholders.

EY’s report shares institutional investor views on the most significant portfolio company strategic threats, universal proxy, board effectiveness, and engagement priorities. Each of these focal areas is accompanied in the report by further topical detail, elaboration on the polling data, and instructive key takeaways for the board. See key takeaways here.

Mayer Brown’s post: “Who Are Quality Shareholders and Why You Should Care” discusses the attributes and concerns associated with different types of shareholders based on their investment horizon (i.e., duration of holding period) and investment conviction (i.e., portfolio concentration) with reference to Delaware law’s principles-based approach to corporate governance, which—among other benefits—fosters governance practices tailored to company-specific circumstances rather than a one-size-fits-all scheme.

Morningstar’s report shows how the top 20 asset managers, which comprise more than 80% of the market (with the top five, consisting of Vanguard, BlackRock, Fidelity, Capital Group, and State Street, comprising 60%), voted on environmental and social shareholder proposals that garnered at least 40% shareholder support over the past three proxy seasons.

In this report, Morningstar reveals the results of its analysis of average shareholder support, and support by the top 10 US asset managers, for the 149 lobbying and political activity shareholder proposals, as well as climate-specific lobbying and political activity shareholder proposals, voted over the past three proxy seasons.

CII announced the approval of a new policy that urges companies to disclose the names of shareholder proposal proponents in their proxy statements. The release also indicates that CII has discussed a potential rulemaking “fix” with the SEC.

Morrow Sodali’s article: “Institutional Pass-Through Voting” (pages 5 – 8) summarizes the current state of investor voting option initiatives launched or planned to be launched by Vanguard, BlackRock, and State Street, as well as Schwab’s “voter preferences” pilot program.

PwC’s memo on ransomware and the board outlines six questions the board should ask management about its practices and policies so that it can effectively oversee ransomware risks. The publication also includes a list of considerations to evaluate as part of any ransomware payment demand.

Relevant for organizations of all types and sizes, the “Directors Handbook on Cyber-Risk Oversight" from the NACD and Internet Security Alliance articulates core principles and associated guidance for the board’s cybersecurity oversight accompanied by a robust toolkit consisting of questions for the board to ask management across a range of relevant topics; a form of board cybersecurity oversight self-assessment, board-level cybersecurity metrics; M&A considerations; and more.

A collaborative survey of 472 public and private company directors conducted by the Wall Street Journal and the NACD regarding various aspects of board cybersecurity oversight revealed (Part One | Part Two) these key takeaways regarding cybersecurity competency and expertise.

PwC's report identifies the primary building blocks and associated practical to do's associated with crisis preparedness that will both fulfill the board's oversight responsibilities and optimally position the company for damage mitigation and recovery. The piece includes a checklist of the key elements of an effective crisis management plan, examples of board escalation triggers, the most common crisis management mistakes and a crisis post mortem analysis agenda.

Corporate Secretary’s survey reveals benchmarking data on board oversight of geopolitical and economic risks based on the results of a recent survey of 229 governance professionals worldwide (69% North America) across predominantly public companies.

Orrick’s memo suggests how companies may consider proactively enhancing their board risk oversight proxy statement disclosure based on the firm’s review of numerous SEC comment letters to companies issued during the last calendar year.

In the wake of recent bank failures, Freshfields provided guidance to companies on considerations relevant to the development and regular review of an investment policy; the creation and composition of an investment committee or oversight group; and board oversight responsibilities.

While nearly 75% directors polled by Corporate Board Member believe the Silicon Valley Bank board failed in its ability to prevent the bank’s failure, 97% said their own board’s risk oversight includes discussion of the risks that can arise from the deteriorating health of key suppliers and partners such as banks and lenders, and 94% percent said their oversight includes discussion of a “worst case scenario” with management and the adjustments that would need to be made if conditions shifted suddenly.

Wilson Sonsini’s memo identifies foundational components of an effective shareholder engagement program, together with big picture “principles-based” recommendations to companies.

Grounded in the context of the board’s fiduciary’s duties, Mayer Brown’s memo sets forth a logical approach for companies to navigate their engagement across a wide range of ever-evolving public policy issues that run the gamut from ordinary course business issues to alignment with particular political parties or ideologies, and everything in between.

Spencer Stuart’s report addresses the actions boards should be undertaking or considering in response to increased investor scrutiny of board composition and the board- and director-focused activism environment, which has been bolstered by the new universal proxy rule. The article imparts recommendations for all boards to consider regardless of their perceived resilience.

In the context of increasing investor expectations of direct engagement with board members, Mayer Brown’s memo identifies potential upsides and risks to this trending practice and outlines the types of topics that should be considered for inclusion in a director-shareholder engagement policy.

“The Shareholder Activism Annual Review” from Insightia and Olshan includes a plethora of activism benchmarking and trend information and data for the US and worldwide for 2022 as compared to prior years, along with insights and going forward expectations.

A majority of boards represented by nearly 360 public company directors responding to Spencer Stuart’s recent pulse survey have taken concrete steps to prepare for an activist situation, and a significant 75% have already identified their go-to activist outside law firm/counsel. Equally noteworthy, nearly half of respondents say their activism preparedness action plan has encompassed a change in board composition and an upgraded board evaluation.

Strategic Governance reported on the spike in CEO exits at Russell 3000 companies within two years of the launch of an activist campaign that includes publicly disclosed demands (excluding certain types of campaigns that would not be relevant to the analysis), particularly those campaigns that result in the activist gaining a board seat.

Among the many insights from PwC’s US institutional investor survey: A plurality (48%) of investors expressed an unwillingness to accept a lower ROI in companies that undertake sustainability activities that have a beneficial impact on society or the environment and 43% were unwilling to accept a lower ROI for sustainability activities relevant to their business performance and prospects. 38% and 43% of investors, respectively, were willing to accept at most a 1% reduction in overall returns, leaving just 14% of investors (in both scenarios) willing to accept a greater reduction in returns.

The Conference Board, in collaboration with Morrow Sodali and Weil, released a series of reports that provide benchmarking data and associated insights on various board practices relating to ESG and stakeholder capitalism: Overview and Key Insights | Incorporating ESG and Stakeholder Interests into Board Business Decisions | Optimizing Board Composition, Structure, and Capabilities in the Era of ESG and Stakeholder Capitalism | Enhancing Board Information and Stakeholder Engagement in the Era of ESG and Stakeholder Capitalism | Improving Board Evaluations of Corporate, Management, and Its Own Performance in the Era of ESG and Stakeholder Capitalism.

Deloitte’s “Board Governance Structures and ESG” identifies the observable and documented changes occurring at the board level in response to the increasing focus on corporate sustainability risks—namely, practices pertaining to board/committee oversight structure and responsibilities; board composition; board meeting integration; and management information and reporting.