'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) ?advice for dealing with employee activism: Employee activism has been in the news recently, particularly following Google's firing earlier this month of 28 workers involved in sit-in protests. As reported in this WSJ article last week, "Company Bosses Draw a Red Line on Office Activists":

? ? ? ? ? ? ? ? ? ? "Business leaders are sending a warning to staff: Dissent that disrupts the workplace won’t be tolerated. ? ? Google’s decision to fire 28 workers involved in sit-in protests against the tech giant’s cloud-computing contract with the Israeli government is the most recent and starkest example of companies’ stricter stance.?Rifts with employees have spilled into public view at National Public Radio, the New York Times?and other workplaces. Bosses are losing patience with staff eager to be the conscience of their companies, especially as employees pressure them on charged issues such as politics and the war in Gaza, executives, board members and C-suite advisers say.

? ? ? ? ? ? ? ? ??? "The moves are a correction to the last several years, when corporate leaders often brooked dissent and encouraged staff to voice their personal convictions......It is an open question as to what rights workers really have to speak out on the job. “None of this is settled,” said Genevieve Lakier, a law professor at the University of Chicago. Workers in the private sector aren’t protected by the First Amendment’s guarantees of free speech, and “there is still a lot of uncertainty about how much free expression by workers is consistent with the operations of the workplace,”?she said......

? ? ? ? ? ? ? ? ?"Corporate leaders?“are very concerned about public backlash, especially boards of directors,”?said Jonathan Bernstein, founder and chairman of Bernstein Crisis Management, which advises companies on corporate communications and reputation management. Ignoring workplace dissent isn’t an option either,?he said. Several clients, he said, are wrestling with squabbling staff on email and Slack over issues ranging from the war in Gaza to U.S. politics......"

? ? ? ? ? ? ? ? ?And as discussed in item (i) from last Monday, a day after firing the 28 workers for participating in the sit-in, ?Google?CEO Sundar Pichai "warned staff that the office is not a place to fight over disruptive issues or debate politics” in this company blog post. More on the issue of employee activism, and some advice from management consultants on dealing with it, in this Fortune article last Wednesday, "Google’s firing of employees signals growing pushback to employee activism":?

? ? ? ? ? ? ? ? ?"......?This week...... Google fired more than 30 employees who protested its cloud deal with Israel.?Google CEO Sundar Pichai told employees in a company blog post ?that the office is not a place “to fight over disruptive issues or debate politics.”....(T)he company’s firing has sparked a debate about the intersection of workplace activism and corporate policies and how to navigate the tension that arises from the sometimes dueling sides....Companies today no longer have the luxury of avoiding sensitive and often contentious social and political issues, and missteps in handling employee activism can be damaging for leaders.

? ? ? ? ? ? ? ??"How to engage with employee activists: I?spoke to a handful of management consultants on the right way to engage with employee activists. Overall, they said that balancing employee activism and workplace policies requires a commitment from both employers and employees to engage in open and respectful communication, uphold company values, and collaborate to find solutions that allow for dissent and?adherence to company standards. Of note, they recommended that leaders:

? ? ? ? ? ? ? ? ? "Establish clear guidelines?on acceptable forms of workplace activism that outline how employees can constructively express their views within the confines of company policies.

? ? ? ? ? ? ? ? ? ?Encourage open dialogue?through internal forums, town halls, and employee resource groups that allow employees to voice their concerns and find solutions.

? ? ? ? ? ? ? ? ? ?Recognize and respect the diversity of opinions?within the workplace and encourage employees to do the same.

? ? ? ? ? ? ? ? ? ?Address conflicts proactively?and seek mutually acceptable solutions to prevent escalation and maintain a harmonious work environment."

? ? ? ? ? ? ? (ii) in defense of the proxy advisors (plus):?

? ? ? ? ? ? ? ? ? (a) The proxy advisors have been under fire recently: Jamie Dimon, in his 2024 annual letter?to JP Morgan shareholders, under the heading "The Undue Influence of Proxy Advisors", slammed proxy advisors, stating that "While asset managers and institutional investors have a fiduciary responsibility to make their own decisions, it is increasingly clear that proxy advisors have undue influence...." (see item (i) from April 8); and then, just a few days later, as reported in this FT article on Sunday, "Proxy advisers inflict ‘serious harm’ to UK, says AstraZeneca chair", the chair of AstraZeneca, Michel Demaré, hit out at the proxy advisors (after ISS and Glass Lewis both recommended voting against the pay package for the company's CEO), in this op-ed?authored by him (see item (iv)(b) from April 17/24). And now a modest defense of proxy advisors in this FT article last week, "Dear board directors, please don’t shoot the proxy messenger":

? ? ? ? ? ? ? ? ? ? ? "Proxy advisers are used to being caught in the crossfire between boards and shareholders. Still, it was a surprise to see AstraZeneca chair Michel Demaré take a direct shot at the messenger in the Financial Times last week. He lambasted advisers for having had the temerity to recommend a vote against chief executive Pascal Soriot’s pay package at the pharmaceutical company’s recent shareholder meeting.?

? ? ? ? ? ? ? ? ? ? ? ?"Not that the advisers’ message got through to all the fund managers and shareholders. Almost 36 per cent of shares were voted against the package, which could be worth up to ￡18.7mn to Soriot. But the majority backed it, despite the counsel from the largest advisers, Institutional Shareholder Services and Glass Lewis, which judged the increase in incentive-based payments “excessive”. ?Are proxy advisers really to blame for fomenting such revolts??The clue is in the name. “It’s advice,” said Alex Edmans, professor of finance at London Business School.?“If investors blindly follow proxy advisers, the investors are to blame.”

? ? ? ? ? ? ? ? ? ? ? "But there are flaws in the system. ISS and Glass Lewis?dominate the market. There is solid evidence in the US that ISS influences voting outcomes, though the study in question makes no judgment about whether its impact is positive or negative. Some overstretched fund managers do follow their recommendations automatically, particularly on uncontroversial resolutions. Mistakes can creep into agencies’ analysis. Advisers that sell consulting services alongside proxy advice need to guard against the risk of conflict.....

? ? ? ? ? ? ? ? ? ? ? "Even so, the proper focus of board members’ ire about revolting shareholders ought to be asset owners and managers themselves rather than the agencies they hire.? As Sarah Wilson of Minerva Analytics, one of the smaller advisers, points out:?“If companies don’t like what shareholders think, they need to go to talk to them, not at them.” At their best, proxy advisers help fund managers to make consistent judgments and comparisons between companies.?They also help smaller shareholders to pool their influence and keep fees down by carrying out analysis that funds would otherwise have to do in-house.?

? ? ? ? ? ? ? ? ? ? ? "Their clients seem to be happy: only 6 per cent of investors told the FRC they were dissatisfied with the research they paid for. Diligent proxy advisers and engaged investors make an important contribution to an informed shareholder democracy. Demaré and his fellow chairs should call off the proxy wars and support that objective — even if they occasionally dislike the electorate’s conclusions."

? ? ? ? ? ? ? ? ? (b) On the subject of proxy advisors, note this Harvard?Law School corporate governance blog post this morning, "The proxy advisory industry: Influencing and being influenced", by an Assistant Professor of Finance at the University of Utah and based on his forthcoming article of the same title in the Journal of Financial Economics. Here is an excerpt from the article's Abstract:

? ? ? ? ? ? ? ? ? ? ? ? ".....(i) As of 2021, ISS?and Glass Lewis?collectively control approximately 90 percent of the market. During this period, the market share of ISS remains stable, while that of Glass Lewis has increased. (ii) When a proxy advisor issues a recommendation opposing management, its customers are approximately 20 percentage points more likely to also oppose management compared to other investors.?(iii) Funds that subscribe to both proxy advisors tend to vote more similarly to the recommendations of the advisor whose voting platform they use. (iv) Proxy advisors often change their advisory stance when investors disagree with their previous advice....."

? ? ? ? ? ? ? (iii) searching for a permanent CFO following the appointment of an interim CFO: the pros and cons of an internal v. external candidate: Observations on searching for a new CFO following the appointment of an interim CFO in last Wednesday's Fortune CFO Daily Newsletter, "ADM’s CFO agrees to resign amid DOJ investigation. What’s the board’s next move?", with reference to the current search by Archer-Daniels-Midland (ADM) for a permanent CFO. (By way of background: in Jan./24, ADM appointed Ismael Roig as Interim CFO following the decision of the ADM board to place its CFO, Vikram Luthar, on administrative leave while the company investigated accounting issues; last week it announced that Luthar was resigning effective Sept.30/24: see item (v) from last Tuesday). From the Fortune Newsletter:

? ? ? ? ? ? ? ? ? ??"In January, I reported that CFO and SVP Vikram Luthar, in the role since 2022, had been placed on administrative leave—Ismael Roig was named interim CFO....With Luthar, according to an April 19 SEC filing by ADM, agreeing to resign as CFO effective Sept. 30, I contacted the company to see what its plans were regarding a permanent finance chief. “ADM has initiated a formal selection process to identify the company’s next CFO,” the company told me in an email. “Vikram Luthar is transitioning to a non-executive position, until the end of September, to support transitional efforts as needed. We appreciate Vikram’s many years of service to ADM, and wish him the best in the future.” The company didn’t comment on the ongoing investigation......

? ? ? ? ? ? ? ? ? ?"Roig has served in various finance and operational leadership roles at ADM for two decades, and as a member of the firm’s executive council for 10 years. “My bet is on the internal candidate, as a qualified outside hire will be difficult to attract without significant financial incentives to retain—even then the willing candidate pool will be small,”?Cole (Shawn Cole, president and founding partner of Cowen Partners, a C-suite-focused executive search firm) told me.......

? ? ? ? ? ? ? ? ? ?"Although Roig may a front-runner, Cole said many of those same?shareholders benefitting from the buybacks may prefer an outside hire?for the full-time CFO spot, someone with?“a clean resume, spotless reputation, a Big Four 4 auditor, significant internal controls, and financial reporting experience. This is a financial reporting trust issue, and the entire accounting and finance function should be under scrutiny.”

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

? ? ? ? ? ? ? ? ? ? (a) Concurrently with its announcement this morning in this press release?of a restructuring plan, Nasdaq-listed, fitness company Peloton Interactive, Inc.?announced in this press release that its CEO was stepping down, with two board members to become interim co-CEOs, as follows:

? ? ? ? ? ? ? ? ? ? "Peloton Interactive, Inc. today announced Barry McCarthy?is stepping down as President, CEO and a Peloton Board Director, and will become a strategic advisor to Peloton through the end of the year. The Board has initiated a comprehensive search process to identify Peloton's next CEO.?Karen Boone, current Peloton Chairperson, and?Chris Bruzzo, a Peloton Director, will serve as Interim Co-CEOs. In addition,?Jay Hoag, a Peloton Director, has been named the new Chairperson of the Board......"

? ? ? ? ? ? ? ? ? ?(b) NYSE-listed?Southwest Airlines Co.?announced yesterday in this press release that its Chief Legal & Regulatory Officer & Corporate Secretary was resigning and moving on to an executive advisory role with the company, to be replaced by the appointment of both a new Chief Regulatory & Corporate Affairs Officer, and a new General Counsel & Corporate Secretary, as follows:

? ? ? ? ? ? ? ? ? ? ? ? "Southwest Airlines Co. announced today that Executive Vice President & Chief Legal & Regulatory Officer & Corporate Secretary Mark Shaw has decided to move to an Executive Advisor role, effective?June 1.?Shaw joined Southwest Airlines??nearly 24 years ago......

? ? ? ? ? ? ? ? ? ? ? "With Shaw's transition, Senior Vice President & Chief Corporate Affairs Officer Jason Van Eaton is promoted to Executive Vice President, Chief Regulatory & Corporate Affairs Officer, effective?June 1.?In this role,?Van Eaton's?duties will include?legislative and regulatory policy oversight, airline airport relationships management, facility construction and maintenance, corporate security, and real estate planning. He'll oversee the Company's?Airport Affairs, Facilities, Governmental Affairs, Legal, and Real Estate Departments.

? ? ? ? ? ? ? ? ? ? ? " Additionally, Vice President Legal—Corporate & Transactions Jeff Novota?is promoted to Vice President General Counsel & Corporate Secretary,?effective?June 1. In this role, Novota will lead Southwest's Legal Department, overseeing all legal functions across various practice areas, including corporate governance, securities, compliance, commercial transactions, general corporate, labor and employment, and litigation matters. He'll also provide legal advice and strategic guidance to the Company's Senior Management Committee and Board of Directors....."

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