'THE DAILY CORPORATE GOVERNANCE REPORT’ (for public company boards, the C-suite and GCs)

? ? ? ? ?Please see the items below with the related links (NOTE: access to link content may be metered, require a no-charge registration or require a paid digital subscription)?

? ? ? ? ? ? ? (i) ISS with latest data on stock ownership guidelines and holding period requirements, anti-pledging and anti-hedging policies, and clawback policies at the S&P 500 companies: Last month,?ISS?published?this paper?"analyzing key equity compensation risk mitigating practices", including in particular the following: clawback policies; stock ownership guidelines and holding period requirements; and anti-hedging and pledging policies. Below are excerpts from the paper:

? ? ? ? ? ? ? ? ? ?"Stock Ownership Guidelines and Holding Period Requirements: Investors often prefer that executives receive a significant portion of compensation through equity and maintain substantive equity ownership to create a stronger alignment between executive and shareholder interests. Practices such as stock ownership guidelines and post-vesting holding period requirements are often viewed favorably by investors as mechanisms to maintain meaningful ownership of the company’s equity by executives. Ownership guidelines are commonly disclosed as a multiple of base salary, number of shares, or dollar value. These practices codify the level of ownership executives should maintain in their respective companies. Holding period requirements too are intended to encourage longer-term equity ownership by dictating how long executives should hold their ownership stake in the company once the awards have vested.

? ? ? ? ? ? ? ? ? ? ? ? ? ? A majority of S&P 500 and Russell 3000 companies maintain CEO stock ownership guidelines and the prevalence of this practice has increased over the past three years. Furthermore, companies have been gradually increasing the multiple of base salary that must be held. Among S&P 500 companies, most require at least six times the base salary and the practice continues to increase in prevalence, from two-thirds in 2022 to nearly three-quarters in 2024.......

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?While stock ownership guidelines require executives to maintain a specified level of equity ownership, post-vesting or post-exercise holding period requirements mandate that executives retain shares released from awards for a specific period of time, such as 12 months or until the end of employment. These may be imposed on all award types or only some, such as stock options or restricted stock units. Post-vesting holding period requirements, however, are not commonly adopted by companies and those that do maintain the practice are on the decline. These additional restrictions tend to be more commonly imposed by S&P 500 companies......The prevalence of these requirements on full-value awards at S&P 500 companies decreased to 10.9 percent in the past year after a slight increase in 2023.....

? ? ? ? ? ? ? ? "Anti-Pledging and Anti-Hedging Policies: When executives use company stock as collateral for personal matters, it creates potential risks, such as the forced sale of shares, which could cause the stock price to drop. Additionally, highly leveraged executives may be motivated to make riskier decisions, further endangering the company and its shareholders. Therefore,?it is best practice for companies to maintain a robust anti-pledging policy that allows for no exceptions or waivers, and not to have any active pledges or indirectly pledged shares.?The prevalence of robust anti-pledging policies has continued to increase over the past five years. In the S&P 500, nearly three-quarters of companies have one in place, up by more than ten percentage points from 2019. In 2024, only 4 percent of the S&P 500 and 12.9 percent of the Russell 3000 did not disclose any policy, and only 2.7 percent and 3.5 percent, respectively, explicitly permitted the pledging of shares. Nevertheless, about 19.9 percent of the S&P 500 and 29.5 percent of the Russell 3000 have waivers or exemptions in their policies that may permit the pledging of shares in certain situations.....

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?Anti-hedging policies are also an important risk mitigator, as hedging against losses in a company’s shares can lead to a misalignment between the interests of shareholders and management. Hedging undermines the value of granting equity to executives in the first place as it potentially protects them from economic exposure to company stock, even while they maintain voting rights. As such, anti-hedging policies that cover a full range of speculative transactions are generally thought to further the alignment of shareholder and management interests. The prevalence of robust anti-hedging policies has been high for quite some time and continues to increase.?A robust policy is defined as prohibiting all hedging of company stock, with no waivers or exceptions,?and applying to a broad group of participants. Nearly 96 percent of S&P 500 companies prohibit the hedging of stock......

? ? ? ? ? ? ?"Clawback Policies: In October 2022, the Securities and Exchange Commission (SEC) adopted its final rules on clawback policies. By the beginning of 2024, all companies listed on the New York Stock Exchange, or the NASDAQ were required to adopt clawback policies compliant with listing standards as described in the SEC’ rule.....Well before it became mandated, many companies started adopting clawback policies voluntarily. Not only have they become the norm, but many firms go beyond the scope of the SEC rules.?As of 2024, 93.1 percent of S&P 500 companies adopted a robust clawback policy that allows for the recovery of not only performance-based equity, but time-based as well......"

? ? ? ? ? ? ? (ii) ?Glass Lewis 2024 policy survey on the virtual v. in person AGM format, auditor rotation (and more): Earlier this month, Glass Lewis?released its "Policy Survey 2024: Results and Key Findings", based on a survey of Glass Lewis clients and market stakeholders, including asset managers and pension funds (defined as "investors" in the report) and corporate issuers and other stakeholders (defined as "non-investors" in the report). The 60-page report covers numerous governance and AGM topics, and below are excepts from a few of them:

? ? ? ? ? ? ? ? ? ? ? "Virtual vs In-Person Meeting Format: There is a significant gap in expectations when it comes to meeting format. Whereas a majority of investors feel shareholder meetings should typically allow for in-person participation (52.7%, vs 21.5% among non-investors), the most popular non-investor response was that shareholders should defer to the board (47.3%, vs 8.1%?among investors).....

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? When boards unilaterally limit shareholder participation, we may take those actions into account when voting. (U.S. investor)

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?A virtual meeting which includes safeguards allows for cost savings and potentially greater shareholder participation; but the safeguards for shareholder rights are paramount. (U.S. investor)

? ? ? ? ? ? ? ? ? ? ? ? ?However, not all investors agreed:?

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? In the past?...?we would advocate for hybrid meetings. However, we are now more minded to support virtual-only meetings if a company can evidence that they can easily replicate the provisions of an in- person meeting. The opposite applies to advocates of in-person or hybrid meetings?–?we need to see?evidence where virtual only meetings have not been in shareholders best interests’ such as where shareholders haven’t been able to ask or get a response on a question. Until we see that, it is becoming?increasingly difficult to push back against virtual-only meetings.(UK investor).

? ? ? ? ? ? ? ? ? ? "Auditor Rotation: A majority of investors were firm about the need for regular rotation of the external auditor firm, with the remaining responses fairly evenly split. Among non-investors, there was not a clear preference, and these respondents were more likely to view a regular tender process and/or rotation of the lead audit partner as sufficient to mitigate any concerns. For example, a Canadian non-investor stated that:

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?Rotation of the lead audit partner/team is sufficient. Companies will have significant difficulties rotating audit firms due to complex independence rules and the fact that we use the audit firms that are not our independent auditor for consulting and support work.

? ? ? ? ? ? ? ? ? ? ? ? ?A European non-investor concurred:?

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? It is not a question of firm rotation. The key point here is the audit partner and the team. Is is proved that a rotation of the audit partner and team is enough to protect the auditor independence. If the firm procedures for independence are robust, then this is not an issue.

? ? ? ? ? ? ? ? ? ? ? ? ? Notably, among respondents who specified a maximum tenure, non-investors (8.1 years) were stricter than investors (12.9 years).?While some respondents advocated for a maximum tenure as low as three years, many highlighted the potential for over-rotation to cause disruption, with 10 and 20 years the most common responses. One U.S. investor shared that:

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?At 30 years, we take a closer look at independence. At some point, inertia is not a sufficient reason to?continue the relationship......"

? ? ? ? ? ? ?(iii) press releases of the day:

? ? ? ? ? ? ? ? ? (a) UnitedHealth?Group Incorporated issued?this statement yesterday on the fatal shooting yesterday of the CEO its UnitedHealthcare insurance arm:

? ? ? ? ? ? ? ? ? ? ? ?"We are deeply saddened and shocked at the passing of our dear friend and colleague Brian Thompson, the CEO of UnitedHealthcare. Brian was a highly respected colleague and friend to all who worked with him. We are working closely with the New York Police Department and ask for your patience and understanding during this difficult time. Our hearts go out to Brian’s family and all who were close to him.”

? ? ? ? ? ? ? ? ? (b) Prudential Financial, Inc. announced on Tuesday in this press release?the appointment of a new CEO, with the current Chairman and CEO to remain as Executive Chairman for the next 18 months,?as follows:

? ? ? ? ? ? ? ? ? ? ?"Prudential Financial, Inc. today announced that the?Board of Directors has appointed Andrew Sullivan as its next CEO, effective March 31, 2025. Sullivan, who currently serves as executive vice president and head of International Businesses and Global Investment Management, will succeed Charles F. Lowrey. Lowrey will remain as Executive Chairman of the Board for 18 months,?working with the Board and supporting and advising Sullivan.....

? ? ? ? ? ? ? ? ? ? ? ? "The Board also announced that Vice Chair Robert Falzon will step down from the Board, effective March 31, 2025, and retire from Prudential, effective July 11, 2025....(S)aid Michael A. Todman, Prudential’s Lead Independent Director, ".....After thoroughly considering a diverse array of candidates for the CEO role, the Board is confident that Andy is the right leader to continue this progress......."

? ? ? ? ? ? ? ? ? ? ? ? ?Compensation arrangements with the new CEO and the Executive Chairman?are disclosed in the related Current Report?filed with the SEC;

? ? ? ? ? ? ? ? ? ?(c)?Dollar Tree, Inc. announced yesterday in its?Q3/24 earnings press release that the?company and the CFO had agreed that the?CFO would step down as CFO,??as follows:

? ? ? ? ? ? ? ? ? ? ? ? "......Dollar Tree, Inc. and Jeff Davis have agreed that he will step down from his role as the Company’s Chief Financial Officer. The company has launched an external search and to ensure a smooth transition, Mr. Davis has agreed to remain with the company through the filing of its fiscal 2024 Form 10-K......";

? ? ? ? ? ? ? ? (d)?Lockheed Martin Corporation?announced on Tuesday in this press release?the appointment of a new general counsel and corporate secretary, as follows:

? ? ? ? ? ? ? ? ? ? ? "The Board of Directors at Lockheed Martin named?Kevin O'Connor?as the corporation's new senior vice president, general counsel and corporate secretary. Effective?Jan. 13,?O'Connor will succeed?Maryanne Lavan, who plans to retire. O'Connor most recently served as senior vice president and chief legal officer for Carrier......Lavan will serve as a strategic advisor through the first quarter of 2025 to help ensure a smooth transition......"

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