'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)?Jamie Dimon's 2023 annual letter to shareholders?(including on 'commonsense?principles for corporate governance'): Jamie Dimon's (42-page)?annual letter to shareholders, part of [https://In 1950 the penetration of American households by newspapers—a statistic measuring in how many homes a newspaper was read each day—was just above 120%. How could the number exceed 100%? Many homes subscribed to two papers—a morning and an evening one.]JP Morgan's Annual Report for 2022?(and no doubt one of the most highly anticipated and widely read of the annual letters to shareholders, along with those of?Warren Buffett-- see item (ii) from Feb 27-- and BlackRock CEO?Larry Fink)-- see item (i) from March 16), was released this morning. Below is from the section, "Some Commonsense Principles for Corporate Governance":

?????????".......Corporate governance principles are becoming more and more templated and formulaic,?which is a negative trend. For example, sometimes proxy advisors automatically judge board members unfavorably if they have been on the board a long time, without a fair assessment of their actual contributions or experience. And some simple, sensible governance principles are far better than the formulaic ones.?The governance of major corporations is evolving into a bureaucratic compliance exercise instead of focusing on its relationship to long-term economic value. Good corporate governance is critical, and a little common sense would go a long way.

?????????"Promoting Open Communication and?Trust with the Board:?As authorized and coordinated by the board,?directors should have unfettered access to management, including those below the CEO’s direct reports. At every board meeting, to ensure open and free discussion, the full board should meet in executive session?without the CEO?or other members of management.?The independent directors should ensure that they have enough time to do this properly.?This one act would allow the board to have a completely open conversation and provide candid feedback to the CEO and management team. Good CEOs, who are trying to do the best job they can, should appreciate this important feedback — and should know how difficult it is to gather in a large group. This type of quality discussion among and with board members leads to collaboration and good succession planning since every meeting should include a real conversation around this important topic.?Meetings such as these allow the board to nurture the extraordinary value of collaboration and trust.

??????????"Confronting Succession Planning:?Our board is responsible for succession planning, and?it is on the agenda every time board members meet — both when they are with me and when I am not in the room.?We already have a “hit-by-the-truck” plan ready to go (not all companies can say this),?and we have multiple successor candidates who are well known to the board and to the investor community. The board believes this is one of its paramount priorities. You can rest assured that our board members are on the case and are very comfortable with where we are.

??????????"Active Engagement with Asset Managers:?We — companies and investors — need to become more active and involved in proxy issues each year to foster better communication between the investors and the board of the companies they own.?Whether it’s issues around climate risk or say on pay, it should be appropriate for the management team or board to actively engage with investors during proxy season to hear and understand each other’s views on key issues and?communicate their positions in real time. Investors should also require proxy advisors to share any communications they have with a company in real time before investors make voting decisions.?In my view, too many portfolio managers and investors have partially ceded critical decisions on key proxy issues to their internal stewardship groups or external proxy advisors. Stewardship teams are also often under pressure to follow proxy advisors by bureaucratic internal systems at investment firms that discourage disagreement and encourage the safety of the herd. Many portfolio managers have told me that even when they have the authority to override the internal group, it is frequently very difficult to do so......"

???????(ii)?COSO's new supplemental guidance for effective internal control over sustainability reporting?(ICSR): In light of?final rules on climate risk reporting from both the SEC and ISSB scheduled for later this year, timely release last Thursday by?the Committee of Sponsoring Organizations of the Treadway Commission (COSO) of this supplemental guidance for organizations to achieve effective internal control over sustainability reporting (ICSR), "Achieving Effective?Internal Control over Sustainability Reporting (ICSR): Building Trust and Confidence through the COSO Internal Control―Integrated Framework." As discussed in this?Compliance Week?blog post last Friday, "New COSO guidance tackles sustainability reporting", the guidance?expands the COSO 2017 report?that examined how to improve confidence in sustainability performance data,?"Leveraging the COSO Internal Control—Integrated Framework to Improve Confidence in Sustainability Performance Data",

?????????Here is how the new guidance is described in the related COSO?news release:

?????????"The Committee of Sponsoring Organizations of the Treadway Commission (COSO) today released a?groundbreaking study with supplemental guidance for organizations to achieve effective internal control over sustainability reporting (ICSR), using the globally recognized?COSO Internal Control-Integrated Framework?(ICIF).?COSO believes its use will build trust and confidence in ESG/sustainability reporting, public disclosures, and enterprise decision-making.

??????????"Leveraging the significant knowledge gained in the application of ICIF to financial reporting over the past two decades, "Achieving Effective?Internal Control over Sustainability Reporting (ICSR): Building Trust and Confidence through the COSO Internal Control―Integrated Framework"?introduces “internal control over sustainability reporting” (ICSR) into the internal control lexicon......

??????????"More companies are now in various stages of implementing controls and governance processes over the collection, review, and reporting of sustainability information, including creating multifunctional teams that bring together a company’s sustainability, finance and accounting, risk management, legal, and internal audit professionals,”?said COSO Chair Lucia Wind. “In many ways, sustainable business reporting is still subject to evolution and innovation. As a result, it will be a process of continuous improvement including building internal capacity and relevant assurance.”?

?????????"The supplemental guidance points to several key themes as organizations and practitioners begin or continue their journeys toward establishing and maintaining an effective system of internal control over financial and sustainable business information. Although ICSR is not yet well established in practice, the paper discusses crucial insights that can be gained from the experiences of those organizations that are leading the way. In the new study,?each of the 17 principles in?ICIF-2013?is explained and interpreted for application to sustainability. Additionally, “points of focus” from the ICIF are included along with practical insights and application of the supplemental guidance.

??????????"This new supplemental guidance is significant and extremely timely given upcoming final rules on climate risk from the SEC and ISSB, not to mention the journey organizations are on to build sustainable management principles into their core mission, purpose, governance, and strategies. The guidance is global, and transcends accounting, reporting, and assurance,”?said Wind. 'Effective internal control is good for business and applies well beyond external financial reporting as COSO’s ICIF points out. All organizations are on a learning and growth journey to enhance and build trust and confidence in sustainable business information for internal and external decision making.'....."

???????(iii)?RBC CEO and other CEOs on whether they are pulling back on their commitments to combat climate change:

As reported in last Friday's?Fortune?CEO Daily Newsletter, "Why CEOs are going all in on the energy transition", last week?Fortune?"talked to a group of CEOs about whether they are pulling back on their commitments to combat climate change?in the face of a volatile and uncertain economy". Among?the group of CEOs were the?CEOs of RBC, BCG?(Boston Consulting Group), Ralph Lauren, S&P Global,?and?State Street?, and they are quoted below:

????????????"Yes, companies face short-term pressures, but fundamentally, our observation is that this is still on the agenda and it will be on the agenda for many years to come. It’s not about cost (reduction) and competitiveness versus climate, but rather using climate to achieve both cost reduction and competitiveness.” -Christoph Schweizer, CEO,?BCG

???????????“There’s been a little bit of an outflow (from ESG funds) recently, but some of that flow from ESG has gone into climate…We’re seeing much more interest in climate, climate analytics, climate funds, climate indices.”?–?Doug Peterson,?CEO,?S&P

????????????“Climate investments, climate activity remain a priority, even as we continue to navigate this VUCA world.??There’s no pulling back.”?–?Patrice Louvet, CEO,?Ralph Lauren

????????????"I asked if banking issues might slow climate investment.?The response:

????????????"I don’t think the banking issues are affecting this…First of all, they’re not really affecting the largest banks.?And second, banks are just one source of capital…There is plenty of capital.”?–?Ronald O’Hanley, CEO,?State Street

?????????????“There’s still a lot of momentum and energy behind this…I’m not worried so much in the short term. I’m more worried about sustaining this for 20 years and being patient with our capital to take the risks we need to take in some of these unproven technologies??–?David McKay, CEO,?RBC.

????????(iv)?report assessing the quality and usefulness of the ESG ratings providers: Interesting, useful and comprehensive (56-page)?report assessing ESG ratings providers?published on March 23 by?sustainability consulting firm?ERM?(?Environmental Resources Management), "Rate the Raters 2023: ESG Ratings at a Crossroads", based on a survey of conducted in Sept. and Nov./22 of "1,400 corprate sustainability professionlas and 450 investment professionals across 20 industires..." Note inter alia Table 1 in the Executive Summary which lists 13 ESG ratings providers by rank, as to (i) quality, and (ii) usefulness, as ranked by (i) corprattions, and (ii) investors. Below is from the?ERM?news release?with highlights from the report:

????????????"ERM....has published its latest assessment of the ESG ratings landscape.?Rate the Raters....finds?that, while demand is surging,?raters face rising concerns from corporates and investors around data accuracy and the overall quality and usefulness of ESG ratings.?More than half of surveyed companies report that they engage with at least six ESG ratings providers.?CDP?was ranked by corporate survey respondents as the best ESG rater for both quality and usefulness.?Investors also rated?CDP?as the top ESG rating provider for usefulness but perceive?ISS-ESG?to be the leader on quality. In addition to CDP and ISS-ESG,?other ESG ratings most frequently cited by corporates and investors for quality and usefulness are?Sustainalytics, MSCI, EcoVadis,?and?Bloomberg.

???????????"Investor demand is the primary driver of engagement with ESG raters, with 57% of companies citing it as their top motivation,?followed by performance assessment which was cited by 21%.....However,?the report finds that over a quarter (29%) of corporates have low to very low trust that ESG ratings accurately reflect ESG performance, and half (52%) have only moderate trust........

???????????"Investors surveyed demonstrated higher levels of trust, with 59% reporting moderate trust and 38% reporting high to very high trust in ESG ratings providers. However,?the survey also reveals a notable trend for investors to develop in-house ESG indicators, metrics, and ratings themselves, reflecting the efforts investors have made in recent years to build their own ESG expertise......"

??????????The report is discussed in this?Reuters?article last week, "Companies pay up to $500,000 for sustainability ratings - report", and below are excerpts:

???????????"Companies are spending up to half a million dollars a year on a sustainability rating to meet investor demands for such data, yet are often dissatisfied with the results, new research shows.?Publicly-listed companies spend, on average, between $220,000 and $480,000 on ratings-related costs per year......based on a survey by sustainability consulting firm ERM.

???????????"Common criticisms related to the accuracy and transparency of the data and ratings, as well as a company's ability to correct errors, the report said......The ERM report said companies' dissatisfaction with the accuracy of ratings was based largely on their experience of finding errors in raters' analysis of company supplied data, undermining their trust in the overall rating.

???????????"Almost a third of the 104 companies surveyed said they had a "low" to "very low" confidence that the ESG ratings accurately reflected their ESG performance.?But they are driven to secure ratings by investor demand, with 95% of companies saying this was a factor for them engaging with ESG raters......"

????????(v)?linking executive pay to ESG metrics at Chipotle: Below is from this?Fortune?CFO Daily Newsletter last Wednesday, "Chipotle has revamped its bonus program to reward a metric that 73% of Fortune 500 companies now use to set executive compensation", with reference to this recent Conference Board report,??"Linking Executive Compensation to ESG Performance" (see item (i) from Nov.7/22):

???????????".....A recent report released by the Conference Board found the vast majority of S&P 500 companies are now linking executive compensation?to some form of ESG performance—an increase from 66% in 2020 to 73% in 2021.?Take for instance?Chipotle Mexican Grill.?The fast-casual restaurant chain first announced in 2021 that up to 10% of?executives’ annual incentives will be tied to their progress toward achieving company ESG goals.?In 2022, Chipotle increased that to 15% and will keep the bar there this year. "The current compensation plan ensures leaders continue to set the tone for Chipotle’s nearly 100,000 employees,”?Laurie Schalow, chief corporate affairs officer at?Chipotle, told me.......Making these goals a priority and holding the leadership team accountable?“intrinsically minimizes our impact while accelerating our growth,”?Schalow says.

??????????"So how does Chipotle’s bonus program work??There’s a?“performance-driven compensation philosophy for executives,” she says. “As an employee’s responsibilities and ability to affect our financial results increases, base salary becomes a smaller component of his or her total compensation,” she explains. “Our Annual Incentive Plan is our annual cash incentive program for certain bonus-eligible employees, including our executive officers, which is based on the achievement of three factors: a company performance factor,?an individual performance factor, and an ESG factor.”......

??????????"Will tying executive compensation to ESG goals work for every organization? The Conference Board’s report suggests that companies should consider using ESG operating goals for one to two years before including them in compensation. This practice would allow time to determine if those goals are truly relevant for the business.?The report cautions that companies will need to go beyond simply “following the trend.”?Companies will need to explain to investors and stakeholders?“why including or adjusting ESG goals in compensation programs makes business sense and will ‘move the needle’ on the firm’s performance and impact,”?according to the report......"

???????(vi)?PwC with '5 actions for bank boards to take now': In light of the recent stress in the U.S. banking sector, on March 24?PwC?posted on its website this "special edition" note, "Five actions bank directors can take now." Below is one of the recommended actions:

???????????"3.?Obtain independent perspectives by meeting in executive session with the Chief Risk Officer and the Chief Audit Executive:?Boards should seek the CRO’s and CAE’s independent?perspectives?on the bank’s current risk profile in relation to the board-approved?risk appetite and strategy as well as the adequacy of executive management's risk management?and crisis response plans. In addition, the CRO and CAE can provide an independent evaluation?of the strengths and weaknesses of the bank’s risk management capabilities given the current?environment.?In particular, boards should seek their evaluation of the quality of risk data, the?speed with which analyses and reports can be produced, and the capabilities of crisis response talent", and,

???????(vii)?press releases/precedent of the day?(CFO employment agreement):?

??????????(a)?Chubb Ltd.?announced last Thursday in?this press release?the?promotion of its Deputy Chief Risk Officer to the position of Chief Risk Officer,?reporting to the President and Chief Operating Officer, as follows:

??????????????"Chubb Limited?today announced that?Frances O'Brien?has been appointed Executive Vice President,?Chubb Group?and Chief Risk Officer. Currently, O'Brien is Senior Vice President,?Chubb Group?and Deputy Chief Risk Officer, a position she has held since?January 2022. In her new role, effective?April 1,?O'Brien will have executive responsibility for Chubb's enterprise risk management organization?and the effective execution of our enterprise risk strategies and processes.

???????????????"Chubb's current Chief Risk Officer,?Sean Ringsted, will continue to serve as Executive Vice President,?Chubb Group?and Chief Digital Business Officer, leading the expansion of the company's digital business unit globally and having responsibility for the use of data and analytics to drive decision-making insights across the company. He will remain a core member of the Risk Underwriting Committee......O'Brien and Ringsted will both report to?Evan Greenberg and?John Keogh, President and Chief Operating Officer.....";

???????????(b)?Sirius XM Holdings Inc.?announced today in?this press release?the promotion of its Controller to the position of CFO, as follows:

???????????????"Sirius XM Holdings Inc.?today announced that it has?appointed?Thomas D. Barry, who currently serves as Senior Vice President and Controller, as the Company's next Chief Financial Officer.?Effective?April 28th,?Mr. Barry will succeed?Sean Sullivan, who is stepping down from the role of CFO to pursue another opportunity at a publicly traded company outside the industry.?

??????????????"Mr. Sullivan's transition will be effective?April 28th,?following the release of SiriusXM's first quarter 2023 earnings and its quarterly earnings call.?Mr. Barry has more than 30 years of finance and accounting leadership experience.?Since 2009 he has served as the Senior Vice President and Controller of SiriusXM and as the Chief Accounting Officer......."

??????????????In connection with the CFO appointment, the new CFO and the company entered into this?Employment Agreement?(which, note, includes as Exhibits a?Stock Option Agreement, a Restricted Stock Unit Agreement, and two Performance-Based Restricted Stock Unit Agreements),?as summarized in the related?Current Report?filed with the SEC.?As regards the timing of option grants?under the Sock Option Agreement, note that the Current Report discloses as follows:

??

?????????????" In connection with his appointment,?on the second business day that the trading window for our employees opens after the date on which his appointment as Executive Vice President and Chief Financial Officer becomes effective, we will grant Mr. Barry an option to purchase shares of our common stock?having a value, calculated based upon the Black-Scholes-Merton option pricing model using the financial inputs consistent with those we use for financial reporting purposes...."

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