Directors' Cut Library

Protiviti's "Setting the 2023 Audit Committee Agenda" is accompanied by a non-exhaustive outline of audit committee self-assessment questions that companies may tailor to their specific circumstances. PwC’s “Approaching the 2022 year-end financial reporting season” identifies key financial reporting considerations associated with the economic environment, tax implications of the Inflation Reduction Act, SEC comment letter and proxy disclosure trends, ESG oversight, and other developments. [12/21/22] – KPMG’s “On the 2023 audit committee agenda” highlights eight topics for audit committee consideration in 2023, including traditional and emerging areas of oversight, as well as bigger picture issues such as committee composition and skill sets. EY’s “What audit committees should prioritize in 2023” identifies key risk management, financial reporting, tax, and regulatory-related issues and developments for audit committees consideration, accompanied by links to relevant resources and targeted questions to facilitate the committee's review and discussion with the board, management, and the external auditors.

Semler Brossy’s “2022 Insights and Priorities for 2023: Six Key Topics for Compensation Committees” outlines considerations for compensation committee members across the perennial and trending topics of goal-setting, pay for performance, stock volatility implications for equity incentives, ESG measures, retentive compensation, and the compensation committee’s expanding remit, with reference to other firm resources for additional information.

For the director and C-suite audience, Freshfields’ “2023 Annual Letter to Boards – Leading the Way: Navigating Volatile Markets and Macroeconomic Forces” discusses key trending topics that will certainly impact the board agenda in 2023 and beyond, including regulatory M&A risks, liquidity challenges, risk oversight, shareholder activism, a politicized governance and ESG landscape, executive compensation, and cybersecurity and data privacy developments. KPMG’s suggested topics for the board’s 2023 agenda are accompanied by the firm’s observations, insights, and recommendations based on its benchmarking surveys and engagement with boards and management.

PwC's "Audit committee oversight checklist" covers core committee responsibilities, as well as committee composition, organization, and process considerations that are commonly addressed in a periodic committee self-assessment.

PwC’s “The audit committee’s role in sustainability/ESG oversight” logically scopes the audit committee’s areas of involvement in the board’s ESG oversight based on the committee’s expertise in overseeing the company’s financial reporting and associated disclosure. Areas of suggested audit committee ESG leadership are accompanied by targeted questions for the committee to consider in carrying out its oversight responsibilities.

PwC’s “Non-GAAP measures - The role of the audit committee” provides a regulatory overview and illustrative examples of non-GAAP financial measures, along with guidance on whether, when, and how to develop and use such measures in a way that will mitigate the potential for investor criticism and SEC scrutiny. The resource suggests discussion topics for audit committees to facilitate the integrity of the company’s non-GAAP disclosures in the exercise of their oversight responsibilities.

The CAQ/Audit Analytics “2022 Audit Committee Transparency Barometer” (highlights online here) reveals S&P 1500 voluntary audit committee disclosure practices, including upticks in cybersecurity oversight-related disclosures, accompanied by illustrative sample proxy disclosures.

The CAQ’s “Audit Committee: The Kitchen Sink of the Board” report shares leading practices and proxy disclosure examples on the board’s allocation of oversight responsibilities to the audit committee; audit committee workload management; and audit committee oversight disclosure.

According to Spencer Stuart’s director survey, board leadership structure practices and perceptions across public companies and private companies are aligned in certain noteworthy respects and not in others. See key takeaways here.

Among the takeaways revealed by PwC's annual Corporate Directors Survey of 704 public company directors are these relating to board composition/diversity, peer perceptions, board evaluations, ESG oversight, climate shareholder engagement, and other key topics.

According to the "2022 CPA-Zicklin Index of Corporate Political Disclosure and Accountability," nearly 62% of S&P 500 companies, compared to 11% of Russell 1000 companies, have some level of board oversight of corporate political spending. Additional board oversight findings are here.

"Private Company Board Compensation and Governance" from Compensation Advisory Partners and Family Business and Private Company Director magazines reveals select benchmarking data on director pay and governance practices based on a survey of more than 1,200 demographically diverse private companies, with 70% of respondents representing wholly family-owned or majority family-owned or controlled companies.

Spencer Stuart's S&P 500 Board Index imparts robust benchmarking data for the S&P 500 on numerous aspects of board composition, organization, and process-related practices. See S&P 500 sector-specific data: Energy | Utilities | Real Estate | Consumer | Communication Services | Information Technology | Financial | Healthcare | Industrials. || [11/30/22] Spencer Stuart's S&P MidCap 400 Index includes data on new director attributes, board diversity practices and disclosure, board refreshment policies, board leadership structures, and board meeting frequency, as well as comparisons with the S&P 500.

Shearman & Sterling's "Corporate Governance & Executive Compensation Survey" contains an abundance of benchmarking data for the 100 largest US public companies, as well as a focused review of—and practical guidance on—numerous hot topics including climate change, environmental and social proposals and disclosure, and ESG-linked pay.

Heidrick & Struggles’ “Route to the Top 2022” reveals an ongoing shift at the largest companies worldwide in CEO candidate demographics that—among other things—reflect expectations of more diverse leadership and a willingness to move beyond the perceived “safe” selection attributes that characterized the CEO successor candidate pool traditionally and during the tumultuous first year of COVID-19.

While board committee oversight responsibilities should be largely tailored to company-specific circumstances, Pearl Meyer’s post makes a good case for including corporate leadership development within the compensation committee’s remit.

According to EY's “How committees are evolving to meet changing oversight needs,” 75% of S&P 500 boards have at least one standing committee in addition to the three key committees—most commonly Finance (35%) or Executive (30%), with other standing committees being much less prevalent. See additional takeaways here.

The majority of boards represented by public company respondents to this member-requested Quick Survey typically conduct their regular board committee meetings in person during the same time frame as their regular board meetings (i.e., during the same multi-day or one-day timeframe, while all directors are in the same place), as well as remotely in between regular board meetings.

In the context of data that reveals significant changes and expectations in workplace models, talent risks, and the workforce impacts of technology, Protiviti’s “The Board’s Role in the Transformation of Work” suggests questions (accompanied by relevant practice trends and tips) to facilitate the board’s oversight responsibilities.

In this Directors & Boards post, Lawrence Cunningham, professor emeritus of corporate governance at George Washington University, explains the evolution of—and critiques—the seemingly fashionable “one-size-fits-all” approach to corporate governance, and encourages companies to resist the pressures to jump on the “best practice” bandwagon without consideration for what is optimal for the company. Rather, he urges boards to defend the practices they employ based on the “best for the company” circumstances.

Private Company Director’s “Know the Boundaries Between Board and Management” explains the age-old “noses in, fingers out” adage regarding the distinction between board and management responsibilities with a view toward seeking to preserve those “boundaries” even in today’s more expansive and demanding governance and business environment.

For those boards seeking to add a director with cyber or tech expertise, “Cybersecurity and the Board” from Spencer Stuart identifies critical qualifications to seek in prospective directors and the potential or likely upsides/downsides associated with different candidate backgrounds commonly explored for these roles.

In what is unlikely to be an isolated case, the DOJ announced resignations of seven corporate directors in response to concerns expressed by the Antitrust Division about violations of Section 8 of the Clayton Act, which prohibits “interlocking directorates.” Subject to enumerated exceptions, this provision prohibits directors and officers from serving on competitor boards concurrently. Companies commonly use D&O questionnaires, among other tools, to identify any potential Section 8 issues.

Prompted by the SEC’s proposed cybersecurity rules, which (if adopted as proposed) would require disclosure of any directors with “cybersecurity expertise,” the Wall Street Journal (subscription required) analyzed the publicly available professional profiles of 4,621 S&P 500 directors for relevant experience within the past 10 years. Note that this proposed disclosure was not supported by the SEC’s Investor Advisory Committee or the Society, among many others. See key takeaways here.

Perkins Coie’s “The Next Wave in Board Diversity Disclosures?” describes a board diversity disclosure campaign launched by the Russell 3000 Board Diversity Disclosure Initiative requesting companies that have not disclosed board diversity data, as well as those that have disclosed board diversity on an aggregated basis, to publicly disclose individual directors’ race, ethnicity, and gender. The firm provides guidance to companies on how to respond to these letters and/or related calls for engagement in view of current acceptance by many large institutional investors and proxy advisors of aggregated board diversity data, director privacy concerns, and other relevant considerations.

“Universal Proxy, Increased Activism and Director Vulnerability” from Russell Reynolds translates the expected implications of the new SEC universal proxy rule to critical actions that all companies—regardless of currently known or anticipated activist activity—should be taking to mitigate the potential adverse impacts of the rule.

Jenner & Block’s “Board Diversity Efforts: Factors for Companies to Consider Given Growing Scrutiny” identifies a number of legal risks associated with companies’ well-intentioned or responsive efforts to increase representation on the board by underrepresented groups and suggests ways to minimize the risks.

Deloitte’s “Expanding and Diversifying Director Candidate Pools through Subsidiary Board Service” makes a case for—and touts the advantages to both companies and employees of—a corporate strategy that encompasses assignment of executives with diverse backgrounds and attributes (including race, ethnicity, gender, experience, and professional background) to subsidiary board service in those instances where director independence is not required.

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 2023, is here. See also Gibson Dunn’s “Director Education Opportunities” (updated January 2023).

In “Establishing Norms for Director Behavior to Enhance Board Culture and Effectiveness,” Sidley’s Holly Gregory provides practical guidance on how to promote a healthy board culture, which is a critical component of board effectiveness.

Semler Brossy's "ESG + Incentives 2022 Report," which benchmarks S&P 500 company ESG incentive metrics by industry, demonstrates rational decision-making by boards in using metrics strategically to support or advance—rather than lead—corporate strategy.

“Linking Executive Compensation to ESG Performance” from The Conference Board and Semler Brossy benchmarks the prevalence, prompts, and approach to the use of ESG measures in executive compensation by the S&P 500 for fiscal 2021, and year-over-year trends. For companies considering inclusion of ESG in their pay programs or seeking a change in approach, the report includes insights and guidance on how to do so most effectively.

In this memo, Wilson Sonsini provides an overview of recent changes to Delaware law that introduced significant flexibility on the part of the board to delegate authority to management to grant equity awards. The article identifies considerations for boards and management in determining whether and to what extent the company should take advantage of the increased flexibility and—if so—important decision points on delegation provisions and parameters.

This Willis Towers Watson report provides S&P 100 benchmarking data on executive stock ownership guideline practices and retention policies, as well as trend data since 2015.

Willis Towers Watson’s report on its study of S&P 500 compensation committee names and charters, which updates its 2019 analysis, reveals continued acceleration of evolving board committee structures to accommodate human capital management-related expectations and demands.

Willis Towers Watson's analysis of director compensation for S&P 500 companies based on 2022 proxy statements reveals notable benchmarking statistics and year-over-year trends.

CII’s updated director overboarding policy (Section 2.11) recommends directors who are employed full-time by a for-profit corporation limit their service to no more than two for-profit boards, and that all other directors serve on no more than four total for-profit boards, a reduction from five boards under its prior policy. The policy also calls for public disclosure of director service policies and all for-profit corporate directorships.

Insightia’s “Proxy Voting Season Snapshot 2022” shares shareholder and management proposal proxy voting data for the five largest institutional investors (BlackRock, Vanguard, State Street, Fidelity, and JPMorgan) for US- and Canadian-based company shareholder meetings from July 1, 2021 through June 30, 2022.

In a letter to clients and corporate CEOs, BlackRock announced a further expansion of its Voting Choice program, which generally enables eligible clients to direct their proxy votes subject to specific enumerated alternatives.

According to BlackRock’s summary of its updated global Investment Stewardship Principles (effective as of January 2023), market-prompted modifications to the global principles (and corresponding market-specific guidelines) relate to nature-related disclosure expectations and the timing of sustainability-related disclosure, which are reflected in the US Proxy Voting Guidelines on pages 20 and 18, respectively.

State Street’s “Making It Plain: Our Asset Stewardship Approach” articulates a financial materiality-centric approach to engagement and proxy voting vis-à-vis its portfolio companies. See key takeaways here.

tate Street’s “The Role of Long-Term Shareholder Voice” discusses the potential for tools, such as the new universal proxy rule, which aim to “empower” individual investors in the proxy voting arena, to undermine long-term investor interests. The post explains the basis for its increasing support for its portfolio company incumbent directors and its tendency to defer to nominating committees’ judgment on board composition, while also identifying the factors it will consider when assessing dissident nominees.

Beginning with the 2023 proxy season, investors in more than 40% of State Street-managed index equity assets in US and UK funds will be able to choose from among seven ISS proxy voting policies (including the ISS Board-Aligned Policy in the US) to vote their proxies or may elect to continue to delegate their proxy to State Street’s Asset Stewardship group.

Responding to increasing investor demand and diverse viewpoints, Vanguard announced that it will begin piloting an initiative for retail investors in several Vanguard-managed equity index funds to vote their proxies in 2023.

Vanguard announced its withdrawal from the Net Zero Asset Managers initiative (NZAM), which it, along with BlackRock, joined in early 2021. See our key takeaways here.

LGIM announced that, beginning in 2023, it will vote against the reelection of board chairs for US companies with a dual class share structure without a sunset provision or opportunity for shareholders to vote on the structure.

NBIM’s climate action plan sets a net zero by 2050 emissions target for all companies in its portfolio. Companies will be expected to establish science-based short-term, medium-term, and 2050 net zero targets and “credible” transition plans covering scope 1 and 2, and material scope 3 emissions, and to report in alignment with the TCFD. Companies that fail to meet expectations may be subject to votes against directors, climate transition plans, and/or executive pay; shareholder proposals; or divestment.

LGIM’s “Q3 2022 ESG Impact Report” shares engagement and voting statistics globally and by region, along with engagement campaign case studies and public policy updates.

FT reported that the CEO of NBIM stated at an event that the investor will vote against companies that don’t set a net zero emissions target, don’t have sufficiently diverse boards, or overpay their top executives.

Wachtell Lipton's "Risk Management and the Board of Directors" identifies legal, regulatory, and best practice guidance sources underlying the board's risk oversight responsibilities; common practices; and tangible recommendations for improved effectiveness. The memo includes discussions on risk oversight vs. risk management and the board risk oversight structure, and special considerations relative to sustainability-related, cybersecurity, and data privacy risks..

Skadden’s “Boards and M&A: Playing, and Winning, the Game of Regulatory Risk” provides guidance on how to mitigate the risks associated with the heightened regulatory scrutiny of—and increased likelihood of regulatory challenge to—M&A transactions. Coverage includes pre-deal diligence and analysis; provisions to mitigate and allocate risks between the parties; ways in which both parties may seek to protect their critical objectives such that the transaction is worth pursuing; and deliberate documentation.

In addition to an overview of cyber risks associated with the turbulent geopolitical landscape and emerging technologies, this Audit Committee Leadership Summit ViewPoints includes robust coverage of the risks associated with the growing threat of disinformation and recommended oversight practices.

PwC's "How can boards help their companies navigate distress—before it’s too late?" provides guidance to boards on how to detect, manage, and respond to their company's financial distress. The publication includes a list of common warning signs and an issues list (e.g., insufficient liquidity), accompanied by targeted questions for management that will help directors better understand the scope of the problem and response considerations.

PwC’s “Trust, risk, and opportunity: overseeing a comprehensive data and privacy strategy” suggests an effective big picture framework for the board’s oversight of data privacy based on the “data lifecycle” components of data discovery (e.g., data collection, sensitivity, and use); data protection; data minimization; and data governance.

EY’s “Why Gen Z matters and what boards should know” makes a case for educating the board and members of management on the expectations, priorities, and unique life experience of the Gen Z demographic (~15 to 25 years old) that should be factored into corporate strategy development and execution. Surveys indicate that traditional consumer engagement approaches, workplace communications and behavior, and retention strategies and incentives are likely to be ineffective among this growing demographic group.

Teneo’s “Be Careful What You Wish For: Four Potential Consequences of “Pass-Through” Voting for Companies” summarizes the trend toward asset managers’ enabling end investors to vote their own shares, thus reducing their concentrated influence on proxy proposal outcomes, and the potential implications and suggested responsive action items for companies associated with greater “shareholder democratization.”

Alliance Advisors’ “Best Practices: Retail Investor Voter Engagement” discusses the increasing importance of retail investors to securing a quorum and favorable proxy vote outcome and to mitigating the potential influence of activist investors. The piece suggests best practices for connecting with retail investors, including year-round engagement and the strategic use of social media, and recounts a recent successful retail investor campaign.

This post: “How Does Board-Shareholder Engagement Really Work?“ summarizes the results of a survey about board-shareholder engagement practices and related analysis of public company shareholder engagement disclosures and benchmarking data, undertaken by representatives of The Conference Board and others. See key takeaways here.

Based on shareholder engagement benchmarking data and institutional investors’ stewardship policies/position statements, Clermont Partners identified key shareholder activism vulnerabilities for companies.

Sullivan & Cromwell's annual review of shareholder activism includes numerous statistics, as well as analysis and commentary, that increase awareness and can facilitate enhanced preparedness for an activist scenario at any company. The report includes an instructive analysis of key terms of publicly filed settlement agreements in 2022 compared to prior years.

This memo from Goodwin recaps the notable facts, circumstances, and takeaways associated with the first universal proxy contest wherein one of two activist nominees was elected to the company’s board.

A survey conducted by Corporate Board Member and Nasdaq of more than 300 public company directors about how ESG is being addressed in the boardroom provided insights into common board oversight, shareholder engagement, board education, and other practices. See key takeaways here.

“ESG Is too Big for One Board Committee. Even the Sustainability Committee.” from Clermont Partners makes the case for an integrated board ESG oversight approach whereby particular topics are delegated to multiple board committees based on their areas of responsibility and expertise—a growing trend. The post provides guidance to companies on how to develop or transition to this model, inclusive of identifying the types of ESG matters that commonly fall within the purview of the three key and other committees.

BDO’s survey of nearly 250 public company directors revealed a majority of boards tasking their Nominating & Governance Committee with ESG responsibilities, while also illustrating an integrated approach whereby discrete responsibilities are assigned to other board committees based on their remits and expertise. The report also addresses board priorities, perceived top business challenges and risks, pay-business objectives alignment tactics, and other non-ESG topics.

This report: “ESG Investing: What Shareholders Do Fund Managers Represent?” summarizes the results and implications of a survey that we covered here (see “Retail Investor Support…”), which revealed that individuals’ appetite for ESG investing and a willingness to compromise financial return for ESG objectives varies considerably by age and wealth. The key takeaway is that retail investors’ views vary significantly, which institutional investors should take into account when promulgating ESG-focused proxy guidelines and voting on ESG-related shareholder proposals.

Approximately one dozen institutional investors announced the Nature Action 100 initiative. The initiative will identify 100 focus companies for investor engagement in sectors deemed to be “systematically important to the goal of reversing nature and biodiversity loss by 2030,” and is planned to facilitate and monitor corporate and public policy activities that protect and restore naturenature.

The institutional investor-led International Corporate Governance Network published a statement setting forth its expectations and recommendations to address nature and biodiversity degradation. Among other things, investors and companies are called on to publicly commit to science-based targets to support the stabilization of biodiversity loss by 2030 and ecosystem restoration by 2050. Investors are further tasked with incorporating these objectives into their stewardship activities and holding portfolio company directors accountable.

Morningstar’s report: “COP15: A Turning Point for Investor Approaches to Biodiversity” reveals the results of its analysis of the engagement and voting policies of 25 US and European asset managers, including the five largest by fund assets (Vanguard, BlackRock, Fidelity Investments, Capital Group, and State Street) on biodiversity preservation and risks.