'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) (more on) the role of the chief sustainability officer (CSO)/reporting lines of the CSO: The role of CSO was discussed in this recent WSJ article, "Sustainability Chiefs Say Their Roles Have Become More Complex and Relevant " (see item (i) from last Monday). More on?the CSO role?in this Bloomberg article last Tuesday, "C-Suite Job Built Around ESG Struggles to Find Its Footing ", with reference to this Conference Board report on CSOs released last Tuesday, "Organizing for Success in Corporate Sustainability 2.0 " based on "a survey of 104 sustainability executives at US companies and discussions with 30 senior sustainability executives from 28 leading US companies?(survey results here ); as well as to this HBR article in March/23,?"The 8 Responsibilities of Chief Sustainability Officers ?(see item (i) from March 14/23). Below is from the Bloomberg?article:

? ? ? ? ? ? ? ? ? ? ?"As more companies add chief sustainability officers to their senior ranks, what these executives actually do and who they report to is far from consistent. The Conference Board, a US-based think tank that examines global corporate trends, has published a report mapping out the issues that CSOs face when they try to implement a company’s sustainability agenda. The findings offer a glimpse into the workings of a C-suite role that largely didn’t exist until five years ago.

? ? ? ? ? ? ? ? ? ? ? ?"After surveying more than 100 sustainability executives at US companies, the Conference Board found that only one-third of CSOs report directly to the chief executive officer. And just 31% of those surveyed said their sustainability programs are “fully integrated” throughout their organizations, largely because roughly two-thirds of the companies have only had a CSO in place for less than five years. There’s little doubt the job of the CSO is gaining prominence as more companies recognize the long-term value that can occur by focusing on “the benefits of sustainability for the business and society,” said Nathalie Risse, senior researcher at the?Conference Board’s ESG center.

? ? ? ? ? ? ? ? ? ? "But still, there remains some confusion about the precise role that a CSO plays. A paper published last year by the Harvard Business Review found that?“despite good intentions — and widespread acceptance of the importance of sustainability — there is still a lack of clarity about a CSO’s tasks and accountabilities.”.......The most effective sustainability teams have CSOs with longer tenure and who report directly to the CEO or other C-suite executives, according to the Conference Board report. CSOs who work with sustainability-steering committees also tend to be more successful in their roles, the survey found.?The expectation is that the list of tasks covered by CSOs will grow in the next three to five years?because of increasing sustainability-linked regulations as well as pressure from investors, customers and other stakeholders to address topics such as climate change, water scarcity and human rights."

? ? ? ? ? ? ? ? ? Note also this companion "Quick Take" posted by the Conference Board on its website last Friday, "As Their Responsibilities Grow, CSOs Dedicate More Time to Environmental Issues ."

? ? ? ? ? ? ? ?(ii) ESG/DEI corner: Cisco CFO on his focus on ESG (and more)/(more on) the diminishing use by the largest corporations of the terms 'ESG' and 'DEI'/on the evolution of the term 'ESG'/HBR post on disclosing lack of progress on DEI:

? ? ? ? ? ? ? ? ? ? (a) Scott Herren is Cisco Systems?EVP and CFO, and he spoke this week with Fortune about integrating AI into products and a number of other topics, including his focus on ESG. He is quoted in yesterday's Fortune CFO Daily Newsletter :?

? ? ? ? ? ? ? ? ? ? ? ? ?"ESG practices and regulatory reporting have become?“a big part of what I focus on, and frankly, it’s something that I care deeply about,” said Herren, who’s been CFO?for more than three years after holding the role at Autodesk for six years following 15 years at Citrix......"

? ? ? ? ? ? ? ? ? ? (b) A number of recent items have highlighted the diminishing use by many major corporations of the terms "ESG" and "DEI": see, most recently, item (ii) from May 14/24. More on this in this Bloomberg analysis last Tuesday, "After Year of Culture Wars, Bosses Are Talking Less About ESG ", as well as in this Fortune article last Thursday, "How the 100 biggest U.S. companies have changed their DEI messaging. " Below is from the Bloomberg article:

? ? ? ? ? ? ? ? ? ? ? ? ? "ESG was near the top of just about every top executive’s talking points just a few years ago. Now, tired of drawing flak from activists on either side of the political spectrum, many CEOs have decided to bottle it up — particularly in the US.

? ? ? ? ? ? ? ? ? ? ? ? ? ?"Bloomberg scrutinized transcripts of financial presentations by the 100 biggest European and American traded companies during the latest results season, and found a sharp drop in references to environmental, social and governance issues.?Climate change and related terms generated 269 mentions in the US so far this quarter — more than 60% fewer than a year earlier.?In one specific example,?a year ago at JPMorgan Chase?& Co.’s annual meeting, Chief Executive Officer?Jamie Dimon?cited “climate complexity” as an issue facing his bank......In this year’s address Dimon focused on wars, geopolitics, technology and artificial intelligence, with climate change only mentioned during the question and answer session.

? ? ? ? ? ? ? ? ? ? ? ? ? "For European companies, climate change has been mentioned 671 times so far in the current results season, around a tenth less than a year ago.?Human rights and its synonyms have received 71 mentions so far this quarter in the US, compared with 129 a year ago. The term is growing in popularity in Europe, however, rising from 58 mentions in the second quarter of last year to 104 this time around.....Diversity and related terms generated 121 mentions among America’s biggest listed groups during the current quarter, down from 244 a year ago.

? ? ? ? ? ? ? ? ? ? ? ? ? "Not all companies are rowing back on their ESG policies, even if it may seem that way, according to Lewis Iwu, co-founder of the consultancy Purpose Union.?While a small number are focusing less on the issues, there’s still a bigger group of companies that are committed and?“see these issues as a key part of reputation building,” he said."

? ? ? ? ? ? ? ? ? ? ? ?Below is from the Fortune article:?

? ? ? ? ? ? ? ? ? ? ? ?"Companies are changing how they talk about DEI in earnings calls and public documents. Gravity Research, a corporate reputation insights firm, analyzed nearly 1,000 documents from Fortune 100 companies—issue reports, SEC filings, earnings calls—to see if and how their language changed from 2023 to 2024.The use of charged terms like “DEI,” “diversity,” and “inclusion” in Fortune 100 issue reports decreased by 22%, while the use of more neutral language like “belonging,” “diverse experiences,” or “diverse perspectives” increased by 59%.?This significant shift in language usage was observed across various sectors.

? ? ? ? ? ? ? ? ? ? ? ?"Explicit mentions of diversity-focused executive positions like “chief diversity officer,” “representation targets,” and “supplier diversity programs” also decreased in 2024 issue reports, as companies rid themselves of language cited in “corporate workerism” rhetoric and lawsuits over so-called discriminatory diversity programs. Report mentions of “diversity officer” fell by 49% year-over-year, while references to diversity-focused programs or terms like “representation goal” fell by an average of 52%.

? ? ? ? ? ? ? ? ? ? ? ?"Companies are shying away from specific demographic categories like race, ethnicity, or gender when describing the workforce. The term “underrepresented” saw the biggest usage drop from 2023 levels. Instead, companies are opting for generalized language like “our people” and “talent and culture.”?Zooming in on earnings calls, the share of Fortune 100 DEI references in the first quarter fell compared to 2023 as corporations avoid any such language—even neutral—in communications that don’t necessitate mentions of diversity efforts......"

? ? ? ? ? ? ? ? ? ? ?Note also the Fortune CHRO Daily Newsletter on Monday, "The vast majority of C-suite leaders say they’re doubling down on DEI but they’re still fighting an uphill battle ".

? ? ? ? ? ? ? ? ?(c) A brief history of "stakeholder capitalism" appeared in this recent Fortune CEO Daily Newsletter ?(see item (ii)(b) from last Tuesday); now some history of the related concept of "ESG" in this Fortune article last Thursday, "Confusion over ESG—and what it means in practice—continues unabated. Here’s the key question ", by Bryce Tingle, Chair in Business Law at the University of Calgary and author of this just-published book (from which the Fortune article is excerpted), "Hard Lessons in Corporate Governance ":

? ? ? ? ? ? ? ? ? ? ? ? ?"There is more than the usual amount of confusion surrounding what companies are supposed to do besides pursue their financial interests and obey the law. A measure of the confusion is the explosion in terms describing what reformers would like to see. They would like to see the pursuit, not of “shareholder value,” but “enlightened shareholder value.” They advocate for “purpose-driven” companies, where “purpose” does not?mean “making money.”

? ? ? ? ? ? ? ? ? ? ? ? ?"There are many other terms, the most prominent of which are “corporate social responsibility” or “CSR” and “Environmental, Social, Governance” or “ESG.”?(“Sustainable” tends to get used a lot as well, but possibly because it is a rather long word that can’t be compressed into a three-letter acronym, it isn’t quite as common.)?There is considerable conceptual confusion among these competing terms,?which upon investigation does not seem entirely accidental.

? ? ? ? ? ? ? ? ? ? ? ? "Let’s take as an example “enlightened shareholder value.” This phrase was adopted with considerable fanfare in connection with reforms to the UK’s Companies Act in 2006. Presumably, it means something different from the plain “shareholder value” it replaced, but it is hard to pin down what this might be. The UK Companies Act requires directors to “promote the success of the company” for the benefit of their shareholders, but to take into account the long-term effects of their decisions, as well as the impact of those decisions on employees, suppliers, customers, “others,” the environment, the community, and the company’s reputation.

? ? ? ? ? ? ? ? ? ? ? ? ?"Practically and conceptually, this seems no different from the shareholder wealth maximization norm that it purports to amend. Any business corporation, whether claiming to pursue “enlightened” shareholder value or not, must work very hard to attract and retain the loyalty of non-shareholder constituencies—employees, customers, suppliers, relevant communities, lenders, and others—as doing so is essential to carry out a company’s profit-making activities. A good way of summarizing the situation is that the 2006 amendments to the Companies Act were a trick played on people who don’t understand (or like) business.

? ? ? ? ? ? ? ? ? ? ? ? "A different kind of trick produced “ESG,” the most common phrase in use in the United States to describe governance that promotes social and environmental outcomes. This trick was designed to permit institutional investment managers to invest in ways that might arguably violate their fiduciary duty to maximize returns on their funds. Law professor John Coffee explains: Conceptually, [lawyers] “rebranded” SRI [socially responsible] investing and converted it into ESG investing by asserting that consideration of the “governance factors” associated with public corporations would enable the fiduciary to identify superior investments and enhance risk-adjusted return…. This in turn enabled law firms to opine to their clients that ESG investing was fully compatible with the trustee’s fiduciary obligations.

? ? ? ? ? ? ? ? ? ? ? ? "This explains the weirdest aspect of ESG: how one criterion, “governance,” that has historically been focused on improving risk-adjusted shareholder returns, was incorporated into a conceptual unit that also contained social and environmental criteria focused on improving outcomes for non-shareholder constituencies. In this case, the trick was played on regulators and courts, but the outcome was the same: a conceptually confused phrase that could mean different things to different groups......"

? ? ? ? ? ? ? ? ? (d) Note this HBR post yesterday, "Why Companies Should Disclose Their Lack of Progress on DEI. "

? ? ? ? ? ? ?(iii) ISS report on shareholder proposals during the 2024 proxy season: On May 22,?ISS Corporate Services?released its report? on shareholder proposals during the 2024 proxy season. Below are the "Key Takeaways":

? ? ? ? ? ? ? ? ? ? ?-- The volume of shareholder proposals submitted for annual meetings held between Jan. 1 through May 31 increased to 739 proposals with 273 voted thus far and 249 still pending.

? ? ? ? ? ? ? ? ? ? ?-- The median support level of all shareholder proposal is largely unchanged at 20.6% for 2024, but those receiving majority support is ticking up.

? ? ? ? ? ? ? ? ? ? ?– Governance and compensation proposals are regaining focus and interest from investors, with 268 such proposals submitted for the first five months of 2024. The median support surged to 34.9%, a level unseen in the past five years.

? ? ? ? ? ? ? ? ? ? – The volume of environmental proposals decreased to 130 proposals and social proposal volume remained mostly flat.?However, support on both environmental and social proposals are up slightly, reversing the two-year consecutive decline in support since 2021.

? ? ? ? ? ? ? ? ? ? – Anti-ESG proposals continue to increase in number, but the support remains low.

? ? ? ? ? ? ? ? ? ? – Top 5 most prevalent proposals?on ballot represent a broad range of topics, including shareholder rights, board accountability, executive pay, GHG emissions, and political spending.

? ? ? ? ? ? ? (iv) press releases/precedent of the day (employment letter agreement with Aon CFO):

? ? ? ? ? ? ? ? ? ? (a)?Alphabet inc. (Google)?announced this morning in this press release the appointment of a new CFO from outside the company, as follows:

? ? ? ? ? ? ? ? ? ? ? ? "Alphabet Inc. today announced that Anat Ashkenazi, currently Executive Vice President and Chief Financial Officer at Eli Lilly and Company,?will join its management team as Chief Financial Officer and Senior Vice President of Google and Alphabet,?effective July 31, 2024. The company had previously announced in July 2023 that Ruth Porat was commencing a new role as President & Chief Investment Officer of Alphabet and Google. She will continue as CFO until Anat starts, including through the company’s Q2 earnings. Anat Ashkenazi is the Executive Vice President and Chief Financial Officer of Eli Lilly and Company, where she has worked for over twenty three years......."

? ? ? ? ? ? ? ? ? ? ?(b) Eli Lily and Company?announced this morning in this press release ?that its CFO was resigning to "pursue a career opportunity outside of the pharmaceutical industry" (see (a) above), as follows:

? ? ? ? ? ? ? ? ? ? ? ? ?Eli Lilly and Company announced today that Anat Ashkenazi has resigned as chief financial officer to pursue a career opportunity outside of the pharmaceutical industry....Ms. Ashkenazi will continue to serve at full capacity in her role and as a member of Lilly's Executive Committee through?July 2024. An internal and external search for her successor is actively underway."

? ? ? ? ? ? ? ? ? ? ?(c) NYSE-listed, global professional services and management consulting firm Aon plc announced yesterday in this press release the appointment of a new CFO from outside the company,?as follows:

? ? ? ? ? ? ? ? ? ? ? ? ? "Aon plc, a leading global professional services firm, announced today that Edmund Reese?will be appointed executive vice president and chief financial officer (CFO) of Aon,?effective?July 29, 2024. Reese will join Aon on?July 1?to succeed?Christa Davies, who will certify second quarter 2024 results and then transition responsibilities and become a senior advisor to the firm until her previously-announced retirement.?As Aon's CFO, Reese will be responsible for the firm's finance function and capital allocation strategy......

? ? ? ? ? ? ? ? ? ? ? ? ? "Reese has more than 25 years of leadership experience at large public companies in the financial services, payments and technology sectors. He has served since 2020 as CFO of Broadridge Financial Solutions.....Lester Knight, chairman of Aon's Board of Directors, added: "Following the successful completion of our succession planning process, including a comprehensive internal and external search, we are excited for Edmund to join Aon....."

? ? ? ? ? ? ? ? ? ? ? ? ?in connection with the appointment of the new CFO, the company and the new CFO entered into this Employment Letter Agreement, ?as summarized in the related Current Report ?filed with the SEC.

? ? ? ? ? ? ? ? ? ? ?(d) NYSE-listed Broadridge Financial Solutions, Inc.?announced yesterday in this press release the appointment of an interim CFO to replace the current CFO who was stepping down to become CFO at Aon plc?(see (c) above), as follows:

? ? ? ? ? ? ? ? ? ? ? ? ?"Broadridge Financial Solutions, Inc. announced today that Edmund Reese, Chief Financial Officer, will be stepping down from his role,?effective?June 30, 2024, to become Chief Financial Officer of Aon,?a?$61 billion?market capitalization global professional services firm. Ashima Ghei, who is currently the Chief Financial Officer of Broadridge's?$4.5 billion?revenue Investor Communication Solutions segment, will serve as Interim Chief Financial Officer. Broadridge has initiated a search process for a permanent successor that will include both internal and external candidates.....

? ? ? ? ? ? ? ? ? ? ? ? "Mr. Reese has served as Broadridge's CFO since 2020.....Ms. Ghei has served as the Chief Financial Officer of Broadridge's Investor Communication Solutions segment since?January 2022?and is a member of the company's Executive Leadership Team....."

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