'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) Morningstar CEO on corporate culture/PwC guide on board oversight of corporate culture:?

? ? ? ? ? ? ? ? ? ?(a) Kunal Kapoor is CEO of Nasdaq-listed, independent investment research provider Morningstar, Inc., and he recently was interviewed by Barron's on a number of topics, including company culture. Below is from the interview, which appeared in this Barron's article last Tuesday, "Morningstar CEO Kunal Kapoor on AI, Investing, and Company Culture":

? ? ? ? ? ? ? ? ? ? ? ?"Creating company culture.?“Many firms just talk about having strong cultures. I think Morningstar people can articulate for you what that means, and we live it. If you look at our internal surveys, one of the things that people say is they love working at Morningstar because they love their colleagues, and they love the mission. Everyone wakes up and feels good about the fact that we’re helping Main Street and that Main Street’s winning when Morningstar is fighting for it. That really matters. I think culture is incredibly important. But I’m also very clear with everybody that it can’t be a crutch. What I specifically mean by that is cultures evolve. You take your values and you ensure that your values are omnipresent, but you have to evolve as a firm no matter what."

? ? ? ? ? ? ? ? ? ? (b) Last Wednesday, PwC?posted on its Governance Insights Center webpage this guide for directors on oversight of corporate culture, "Why does the board need to know the company’s culture? Hint: to make sure it’s an asset, not a liability." Below is from the introductory paragraphs of the guide:

? ? ? ? ? ? ? ? ? ? ? ? "A healthy corporate culture supports a company in delivering on its strategy. A dysfunctional culture can seriously damage the brand. This makes board oversight of corporate culture critical to determine whether it impedes or enables the business. But how do you assess, track and monitor something so elusive? We outline some basic steps you can take......

? ? ? ? ? ? ? ? ? ? ? ? ?"Corporate culture encompasses the beliefs and often-unspoken understandings that influence behavior throughout the company.?It helps inform how a business will deal with customers, partners, employees and every other stakeholder. Simply put,?it’s the self-sustaining patterns of behaving, feeling, thinking and believing. It is the foundation of?“how we do things around here.”

? ? ? ? ? ? ? ? ? ? ? ? ?"At its best, culture is an asset. Being a positive, supportive place for people to work and do business can help attract and retain talent while encouraging agility and innovation. When closely aligned with a company’s purpose, values and strategy, it can be a powerful enabler of success. At its worst, culture can be a hindrance, undermining initiatives and performance.?When a disconnect exists between culture and the company’s priorities and values, trust erodes, risks and crises can increase, employees are unhappy, and leaders’ ability to achieve key objectives is undermined,?threatening reputational and financial risk for the company.

? ? ? ? ? ? ? ? ? ? ? ? ? "Corporate culture becomes established organically, often over long periods of time, and it can change subtly, unpredictably and for a variety of reasons. An organization- wide cultural shift may follow a strategy reassessment or overhaul, a significant acquisition or merger, a hiring spree or wave of layoffs, new employee mandates for remote or in-office work arrangements, or something else. Consider also that a company often has multiple cultures that the board needs to understand and assess due to its operations across global markets, different business units, or even a major acquisition or merger.

? ? ? ? ? ? ? ? ? ? ? ? ? "While management is responsible for setting and cultivating culture, boards have a responsibility to understand, assess and monitor corporate culture — and to look for warning signs if things seem to be moving in a negative direction — to voice concerns and act.?The problem: Culture is inherently intangible and difficult to quantify, and directors’ limited visibility into daily operations make it a challenge to understand and evaluate culture. But boards can identify, evaluate and monitor culture, and they should use that ability to oversee what’s going on at the company underneath the figures and charts."

? ? ? ? ? ? ? ? ? ? ? ? The PwC guide then outlines the following?four "key questions that directors can address in exploring the board’s oversight role" of corporate culture:

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?"1. Do we have a board approach to overseeing corporate culture?

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 2. Does the company’s culture align with the stated purpose, values and strategy?

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 3. ?Does the information and metrics the board receives suggest that corporate culture is understood and healthy or that it needs to be addressed?

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 4.?Do our board practices and tone at the top align with the corporate purpose, values and strategy?

? ? ? ? ? ? ? (ii) why a longtime Disney board member is likely to have stepped down: The Walt Disney Company announced on Friday in this press release?the departure of board director Safra Catz, CEO of Oracle, after six years on the Disney board. The likely reason for the departure is discussed in this Fortune article over the weekend, "Oracle CEO Safra Catz steps down from Disney’s board after Ellisons’ big move in Hollywood", and is related to the following set of facts: Larry Ellison, co-founder, longtime former CEO and now chief technology officer and executive chairman of Oracle, is the father of David Ellison; earlier this month, Paramount Global merged with David Ellison's Skydance Media (see item (v) from July 9/24), and David Ellison is now chairman and CEO of the merged entity, a direct competitor of Disney. From the Fortune article:

? ? ? ? ? ? ? ? ?"The high-stakes $28 billion deal between Hollywood studios Paramount and Skydance Media Company has careened into Oracle CEO Safra Catz.?Catz, who has spent the past decade at the helm of Oracle, served on the Walt Disney board for six years. She has now stepped down, the media and entertainment giant announced yesterday......

? ? ? ? ? ? ? ? ? "Disney is a direct competitor to the entity forged by the Paramount-Skydance deal, New Paramount. New Paramount is led by David Ellison as chairman and CEO. David Ellison is heir to Oracle cofounder, chairman, and chief technology officer Lawrence Ellison, who is also Catz’s boss on the Oracle board.......

? ? ? ? ? ? ? ? ? ?"While there’s nothing legally wrong about Catz serving on the board of the competitor to a company funded and run by the son of one of her bosses and colleagues, it might make things a bit awkward in the Disney boardroom. “Corporate directors are trusted with proprietary information,” Georgetown University associate professor and corporate governance expert Jason Schloetzer told Fortune.?“Directors are good at understanding when something they learn in the boardroom can and cannot be shared elsewhere.” And given that Catz is a CEO, she very likely understands the importance of confidentiality, too, Schloetzer said.?“I suspect Catz’s departure is more optics than anything else,” he said. 'It may help others in Disney’s boardroom retain a level of confidence to have sensitive conversations about the changing media industry.'......."

? ? ? ? ? ? ? (iii) experts with steps IT leaders should take to be prepared for the next major IT outage : In the wake of the unprecedented global?IT outage last Friday, WSJ's CIO Journal talked with IT experts who "shared....their takeaways for preparing for the next major information technology outage", as reported in this WSJ article yesterday, "Preparing for the Next Worldwide Tech Outage." Here are the five takeaways, each of which is discussed in the article:

? ? ? ? ? ? ? ? ? ? "Be familiar with how vendors develop, test and release their software......

? ? ? ? ? ? ? ? ? ? ?Re-evaluate how your firm accepts software updates from ‘trusted’ vendors.......

? ? ? ? ? ? ? ? ? ? ?Develop a disaster recovery plan.......

? ? ? ? ? ? ? ? ? ? ?Review vendor and insurance contracts.......

? ? ? ? ? ? ? ? ? ? ?Weigh the advantages and disadvantages of the various platforms......."

?

? ? ? ? ? ? ? ? (iv) say-on-pay vote results in 2024:a recap/Salesforce becomes the 4th. prominent U.S. company this proxy season to have a failed say-on-pay vote:

? ? ? ? ? ? ? ? ? ?(a) A recap of the say-on-pay results during the 2014 proxy season?as of June 4/24 of the S&P 500 and Russell 3000 companies is in this report posted by compensation consulting firm?Semler Brossy?on June 20, "2024 Say on Pay + Proxy Vote Results." Note in particular the table on p.3 which lists?the 14 companies that had failed say-on-pay votes as of June 4, as well as the "likely causes" for the vote being under 50%. Below are some excerpts from the report:

? ? ? ? ? ? ? ? ? ? ? ? "14 Russell 3000 companies (0.9%) have failed Say on Pay thus far in 2024, 3 of which are in the S&P 500 (0.8%).

? ? ? ? ? ? ? ? ? ? ? ? "14 companies (0.9%) have failed Say on Pay thus far in 2024, compared to 26 companies at this time in 2023 (1.7%);?

? ? ? ? ? ? ? ? ? ? ? ? "The percentage of Russell 3000 companies receiving greater than 90% support (76%) is higher than the percentage at this time last year (74%);?

? ? ? ? ? ? ? ? ? ? ? ? ?"The current Russell 3000 average vote result of 91.2% is 120 basis points higher than the index’s 2023 year-end average, and the current S&P 500 average vote result of 89.8% is 110 basis points higher than the index’s 2023 year-end average

? ? ? ? ? ? ? ? ? ? ? ? "8.8% of Russell 3000 companies and?7.6% of S&P 500 companies have received an ISS “Against” recommendation thus far in 2024"

? ? ? ? ? ? ? ? ? ? ? ? ? Note also this May 1 Equilar blog post, "How Companies React to Say on Pay Failures", which in particular contains a useful chart, "Most Common Changes Following a Failed Vote in 2022", and a related discussion, as well as a chart, "Percentage of Companies Passing Say on Pay Following a Failed Vote."

? ? ? ? ? ? ? ? ? ? ? (b) As noted in a previous item, three prominent U.S. companies, namely?3M, Newell Brands and Norfolk Southern, had failed say-on-pay votes this year, and two, namely BlackRock and Boeing,?received very low shareholder support (see item (ii)(b) from May 29/24). Add Salesforce to the list of prominent companies with failed say-on-pay votes during this year's proxy season, as reported in this July 1 CNBC article, "Salesforce shareholders reject compensation plan for CEO Marc Benioff, other top execs":

? ? ? ? ? ? ? ? ? ? ? ? ? ? "Salesforce?investors voted against the company’s compensation plan for top executives, after shareholder advisory groups raised concerns about equity awards granted to CEO Marc Benioff. According to a regulatory filing?on Monday, the resolution to approve the compensation received 339.3 million votes in favor and 404.8 million against?at the annual meeting held on Thursday.?

? ? ? ? ? ? ? ? ? ? ? ? ? ? "The board had urged shareholders to vote in favor of the resolution. But two shareholder advisory firms, Glass Lewis and Institutional Shareholder Services, both recommended that investors vote down the measure......In January, the board’s compensation committee gave Benioff a second long-term equity award worth $20 million, in recognition of the company’s?“successful transformation actions and strong financial performance in the fiscal year,” among other factors. Glass Lewis wrote in its recommendation that?“shareholders may reasonably be wary of the substantial discretionary equity grants”?issued to Benioff in January, adding that there was a?“lack of a fully convincing rationale” behind the grants......."

? ? ? ? ? ? ? (v) financial reporting/the tendency for companies to beat analysts' earnings estimates: Some interesting data on corporate earnings results versus the street's earnings estimates in John Auther's Bloomberg "Point of Return" column last Wednesday, "What to Expect When You’re Expecting Earnings":

? ? ? ? ? ? ? ? ? ? ".....The earnings-beat metric —?the percentage by which S&P 500 earnings exceed?expectations —?is expected to come in at 9% year-on-year. That?compares to 7% the previous quarter —?the smallest beat since?2022 — but it’s still not great.?With analysts not revising their second-quarter estimates, they’re confident in their forecasts.....

? ? ? ? ? ? ? ? ? ? "Overall, the S&P 500 is in line to report earnings growth of about 9.3% for the second quarter, which would be the highest since the first quarter of 2022, according to FactSet. Thanks to the practice of “earnings management” as investor relations offices talk down prospects as announcements approach to improve their chance of a beat, it’s commonplace for S&P 500 companies to report actual earnings above estimates. That has happened in 37 of the past 40 quarters.?FactSet’s John Butters explains as follows:

? ? ? ? ? ? ? ? ? ?? ? ? ? Over the past 10 years, actual earnings reported by S&P 500 companies have exceeded estimated earnings by 6.8% on average. During this same period, 74% of companies in the S&P 500 have reported actual EPS above the mean EPS estimate on average. As a result, from the end of the quarter through the end of the earnings season, the earnings growth rate has increased by 5.5 percentage points on average (over the past 10 years) due to the number and magnitude of positive earnings surprises.

? ? ? ? ? ? ? ? ? ? "As Ned Davis Research strategists Ed Clissold and Thanh Nguyen put it, it’s disingenuous to lower guidance only to claim victory a few weeks later......"

? ? ? ? ? ? ? (vi) press releases/precedents of the day (Estée?Lauder?CEO employment agreement; Moderna director compensation policy and director indemnification agreement):

? ? ? ? ? ? ? ? ? ?(a) On July 11, The Estée?Lauder Companies Inc.?(ELC)?announced in this press release?the?retirement of its CFO, with a "successor for the role of CFO having been identified and to be named in the coming weeks" (see item (iii)(b) from July 15/24). Yesterday, ELC?announced in this press release?the promotion of its corporate controller to the position of CFO, reporting to both the Executive Chairman and the CEO,?as follows:

? ? ? ? ? ? ? ? ? ? ? ? "The Estée Lauder Companies Inc. today announced that Akhil Shrivastava has been appointed Executive Vice President and Chief Financial Officer,?succeeding Tracey T. Travis, whose intention to retire was announced on July 11, 2024. Akhil will report to William P. Lauder, Executive Chairman, and Fabrizio Freda, President and Chief Executive Officer,?consistent with the reporting structure for Tracey. Akhil will assume his new role effective November 1, 2024. Tracey will remain at the Company until her retirement on June 30, 2025 to support a seamless transition.......

? ? ? ? ? ? ? ? ? ? ? ?"In his new role as Chief Financial Officer, Akhil will be responsible for the Company’s Global Finance, Accounting, Tax, Treasury, Investor Relations and New Business Development organizations.....Since joining ELC in 2015, Akhil has held several senior finance roles within the Company. He was recently named ELC’s Senior Vice President, Corporate Controller, a role that oversees Corporate Accounting and Financial Planning & Analysis, the International and Online Finance organizations, Pricing and Value Chain Finance, serving on both the Finance & Strategy Leadership Team and Executive Leadership Team......."

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

? ? ? ? ? ? ? ? ? ? ?(b) Moderna, Inc.?announced yesterday in this press release that a new director was joining the Board, and that two directors were resigning but would "continue providing advisory services to the Company on key matters following their Board retirement", as follows:

? ? ? ? ? ? ? ? ? ? ? ? ? "?Moderna, Inc. today announced that David M. Rubenstein, Co-Founder and Co-Chairman of The Carlyle Group, will join Moderna's Board of Directors, effective August 5, 2024. Upon Mr. Rubenstein's appointment, directors Robert Langer and Stephen Berenson will also retire from the Board. Mr. Rubenstein will replace Mr. Berenson on the Audit Committee of the Board. Both Dr. Langer and Mr. Berenson have agreed to continue providing advisory services to the Company on key matters following their Board retirement......Moderna's Nominating and Corporate Governance Committee anticipates continuing to focus director recruitment efforts on individuals with scientific and innovation experience following Dr. Langer's departure....."

? ? ? ? ? ? ? ? ? ? ? ? ? ? As disclosed in the related Current Report filed with the SEC, the new director will receive compensation in accordance with the company's Amended and Restated Non-Employee Director Compensation Policy, and will enter into the company's standard form of?Indemnification Agreement.

? ? ? ? ? ? ? --------------------------------------

Please contact me if you would like to be on the distribution list and receive every issue of this newsletter directly in your inbox.