'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) EY report on board committee structures and responsibilities at the S&P 500 companies: In November, EY?posted on its Center for Board Matters webpage this useful?report on board committees at the S&P 500 companies,?"How board committee responsibilities and structures are changing." Below is from the opening paragraph:

? ? ? ? ? ? ? ? ? ?"Technology and sustainability are key areas of strategic focus where boards are deepening their oversight at the committee level. Some large-cap boards have added technology or sustainability committees.?Many others have expanded the oversight responsibilities of the three core committees generally required by US stock exchanges (audit, compensation, and nominating and governance) to include topics such as cybersecurity,?artificial intelligence (AI), human capital management,?climate-related matters and more....."

? ? ? ? ? ? ? ? ? ?Below is from the section, "Audit committees expand oversight of nonfinancial risks, including sustainability, cybersecurity and AI":

? ? ? ? ? ? ? ? ? ? ? ? ? ? "Sustainability oversight: While?nominating and governance remains the primary committee overseeing sustainability matters, the percentage of companies mentioning environmental, social and governance (ESG) and sustainability in their audit committee descriptions has nearly quadrupled, from 6% in 2021 to 22% in 2024. Mentions of environmental and climate have doubled, from 7% in 2021 to 14% in 2024.......

? ? ? ? ? ? ? ? ? ? ? ? ? ? ?Cybersecurity oversight: Audit remains the primary committee overseeing?cybersecurity risks.?While the percentage of S&P 500 companies citing cybersecurity in their audit committee descriptions has increased since?2021 (from 70% to 77%), it is up significantly since?2019, when only a quarter of audit committees were charged with cybersecurity.......

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?AI oversight:?Companies are starting to disclose some level of AI?oversight responsibilities, most commonly under the audit committee as part of risk oversight. However, disclosures vary with some only listing AI among a variety of specific risks, while others provide more in-depth information regarding their AI oversight responsibilities....."

? ? ? ? ? ? ? ? ? ? Below is from the section, "Compensation committees embrace oversight of human capital matters":

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? "Once focused primarily on compensation matters related to the CEO, C-suite, and equity incentive plans, compensation committees are now the primary committee overseeing human capital matters, including diversity, equity and inclusion (DEI). A majority (66%) of?compensation committee descriptions now reference diversity, DEI or human capital management.....

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?What's in a name?: Recent years have seen a trend of compensation committees renaming themselves to better represent their role in overseeing human capital. From 2021 to 2024, the percentage of S&P 500 compensation committees inserting “human capital” or “human resources” into their names increased to 21% from 11%, while those adding “talent” rose to 11% from 5%.?Overall, 27% of?compensation committees have adjusted their names to reflect these responsibilities since 2021."

? ? ? ? ? ? ? ? ? ? ?Below is from the section, "Nominating and governance committees take the lead on sustainability oversight":

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?"Nominating and governance committees continue to hold the lead role in overseeing corporate sustainability and social matters. Most S&P 500 companies (68%) cited ESG or sustainability oversight in their description of the nominating and governance committee’s responsibilities this year,?up from 53% in 2021, and 48% cited environmental or climate topics, up from 41% in 2021. Other ESG-related terms cited in committee descriptions include public policy, political or lobbying expenditures (42%), social or corporate responsibility?(32%), and diversity/DEI (21%). Some specific?responsibilities commonly cited include overseeing environmental and social responsibility strategies, policies, procedures, initiatives, goals, risks, performance and disclosures.......

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?While nominating and governance committees are providing primary oversight of sustainability policies and strategies, we are also observing many boards adopt a more integrated governance model whereby other committees are overseeing the aspects of ESG or sustainability most relevant to their purview......"

? ? ? ? ? ? ? ? ? ? ? Below is from?the section, "Boards continue to add sustainability and technology committees, but the pace is slow":

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?"Overall, around three-quarters of S&P 500 boards have at least one board committee beyond the core three regulatory committees, a figure generally?consistent with prior years. Since 2021, the percentage of boards with two additional committees has increased to 22% from 20%. Across all additional board committees tracked, only?two types of committees have seen a slight uptick in prevalence in the past three years: technology and sustainability.?Currently, 13% of boards have technology committees,?up from 11% in 2021, and 12% have sustainability committees,?up from 10%. That exceeds the?11% of boards that have risk committees.....(O)utside the financial services sector,?only 3% of S&P 500 companies have a risk committee......"

? ? ? ? ? ? ? ? ? ? ? ?Below is from the section, "A closer look at the committees that have increased in prevalence":

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?"Technology: While the percentage of companies with a separate technology committee had increased over time, that growth plateaued at 13% in 2023, staying consistent over the past year. These committees appear to be focused on both strategic opportunity and risk, with 78% of technology committee descriptions stating that they review technology strategy, and 70% charging them with oversight of cybersecurity matters (sometimes in coordination with the audit committee). Their attention to cybersecurity may be growing: Nearly a third now have “cybersecurity” in their name,?up?from 22% in 2021......

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?AI is also starting to emerge as an area of committee?focus, with 13% of technology committee descriptions?mentioning it. In all, 5% of S&P 500 companies mention AI in a board committee description, with the list including technology, audit, risk, compliance, nominating and governance, and public policy risks and some said they were reviewing trends that?may affect strategy, overseeing AI-related policies and standards, assessing the alignment of AI initiatives with business objectives and strategies,?and overseeing the development process.

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Sustainability: Stand-alone sustainability committees, most commonly named “sustainability” or “public responsibility” committees, have also increased in prevalence, from 10% in 2021 to 12% in 2024. However, as with technology committees, the pace at which boards were adding these committees has slowed and has remained static since 2023. These committees are primarily focused on overseeing policies, strategies, goals and activities related to sustainability and corporate responsibility matters.......Sustainability committee descriptions?specifically referencing “climate” have doubled since?2021. Now two-thirds of sustainability committee descriptions do, with many adding it under their?definition of what is included in oversight of ESG....."

? ? ? ? ? ? ? (ii) DEI:?a growing DEI backlash in Canada?/more on the backlash in the U.S./Boeing plea deal rejected by judge based on DEI requirement:?

? ? ? ? ? ? ? ? ? ?(a) This Globe and Mail?article yesterday, "The growing backlash to DEI and ESG in the U.S. is affecting Canadian companies as well", was published as a companion piece to the "Board Games" release yesterday (see item (i) from yesterday, and below are excerpts (see also today's Globe and Mail ?Business Brief Newsletter?under, "A growing backlash to DEI reaches Canadian companies"):

? ? ? ? ? ? ? ? ? ? ? ?"Canada, meet Robby Starbuck.?The online activist takes credit for pressure campaigns that have prompted multiple U.S. companies to scale back or eliminate their diversity, equity and inclusion (DEI) policies and practices. Companies such as Deere & Co., Harley-Davidson Inc., Molson Coors Beverage Co. and Walmart Inc., have all said they’ll change hiring practices, pull out of relationships with equity groups or cut funding for pride parades......

? ? ? ? ? ? ? ? ? ? ? ? ?"Canadians might be tempted to dismiss Mr. Starbuck as an anomaly, a product of U.S. culture wars....Canadian companies will find no respite by simply being on the other side of the border.?At a minimum, those with U.S. operations must navigate the new American climate.....t’s easy to say Canada is a far different society, with a far different business culture. But the signs of some tumult are already here,?with the population outside Canada’s urban centres restive. Alberta’s ruling United Conservative Party is openly hostile to DEI and climate initiatives, and federal Conservative Leader Pierre Poilievre, Canada’s likely prime-minister-in-waiting, repeatedly uses the word “woke” as a pejorative while promising to undo the signature piece of climate policy produced by the current Liberal government.

? ? ? ? ? ? ? ? ? ? ? ? ? ?"In short, Canadian companies will likely find they need to obscure their ESG and DEI practices with new names, to avoid what have become damaged brands. But so far, the results in The Globe and Mail’s Board Games corporate ranking, done in partnership with Toronto consulting firm Global Governance Advisors, do not show a pullback in these policies in 2024 disclosures......

? ? ? ? ? ? ? ? ? ? ? ? ? ? "In Canada, companies and their investors have so far not faced a high level of opposition to ESG, but their use of the acronym is quickly falling out of favour. A recent survey of corporate disclosure by Montreal-based consultancy Millani charted steady growth for many years in mentions of ESG by companies in the composite index. Last year, the trend reversed, with just 29 per cent of listed companies referring to ESG, down from 40 per cent the year before. Fifty-three per cent of corporations, meanwhile, used “sustainability” instead......

? ? ? ? ? ? ? ? ? ? ? ? ? ? ?Melanie Adams, managing director and global head of responsible investment for RBC Global Asset Management, said “it was almost unfortunate how far the pendulum swung" with attention to ESG because it obscured that the factors underlying it have always been critical for investors. “Because now it has swung back the other way with the ESG backlash.”.......

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?"Ian Robertson, partner with the executive consulting firm Jefferson Hawthorne Group, plans to make advising his clients on the rise of the anti-woke movement in Canada a key part of his business. Many companies put DEI policies in place reactively, not strategically, he said. Now that they’re under the opposite kind of political pressure, they cannot justify keeping the policies based on a return on investment, said Mr. Robertson, who was formerly chief executive officer of Kingsdale.?Outside of “the business-hub bubbles of Toronto, Montreal or Vancouver,” Mr. Robertson said, views on a lot of issues in the rest of Canada are very different from the pro-ESG and pro-DEI consensus.?“I would say thinking that we’re not American is not a strategy.”

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? ? ? ? ? ? ? ? ? ? ? ? (b) Below is from this FT article last Thursday, "‘Crazy ideology’: US companies drop diversity efforts as conservative pressure mounts":

? ? ? ? ? ? ? ? ? ? ? ? "US companies are accelerating their retreat from diversity and inclusion initiatives amid an all-out assault from conservatives emboldened by the election of Donald Trump. The pullback includes Walmart’s decision to end some of its diversity, equity and inclusion initiatives last week, and Boeing’s move to disband its DEI department earlier this month. And on Thursday, a US judge in northern Texas rejected a plea deal federal prosecutors had reached with Boeing?tied to two fatal crashes of the 737 Max, objecting to justice department guidelines to consider diversity in selecting a monitor to ensure corporate compliance......

? ? ? ? ? ? ? ? ? ? ? ? "The scale of the pullback is an abrupt reversal from policies that just a few years ago appeared poised to deeply influence diversity in corporate America, and appeared ascendant with the election of a Democratic president just a few years ago......In rolling back their DEI and environmental, social and governance efforts, diversity consultants say executives see themselves as falling into line with a broader shift towards conservative values in American public life after the presidential election.

? ? ? ? ? ? ? ? ? ? ? ? ?"Several companies have deprioritised diversity on their corporate boards.?The number of new directors classified as people of colour who were appointed to S&P 500 boards dropped to 24 per cent in 2024, down from 34 per cent in 2022, according to a December 5 report from Egon Zehnder......Still, two-thirds of the 30 companies in the Dow Jones Industrial index continue to publish information about their diversity programmes online, ranging from Cisco?to Merck?and Visa....."

? ? ? ? ? ? ? ? ? ? ? ? Note also this Bloomberg?article last Thursday, "Walmart’s DEI Pullback Is a Chance to Try a New Approach", which concludes as follows:

? ? ? ? ? ? ? ? ? ? ? ? "Walmart’s shift in approach on DEI policies isn’t an indictment of workplaces interested in progress, but a welcome correction to how the diversity-industrial complex threw them off course, with programs and policies that in some cases were performative at best—and, at worst, served to undermine the broader acceptance of DEI goals. It’s perhaps an opening for better ideas that can help companies realize the still substantial promise of diversity and economic inclusion."

? ? ? ? ? ? ? ? ? ? ? (c) As noted in (a) above, as well as in this FT article last Thursday, "Boeing’s Max plea deal rejected by court over DEI provision", a U.S. this month rejected a Boeing plea agreement on the basis of a DEI provision in it:

? ? ? ? ? ? ? ? ? ? ? ? ? ?"A US judge has rejected Boeing’s guilty plea agreement stemming from twin crashes of the 737 Max, criticising the use of diversity, equity and inclusion considerations in selecting a monitor to oversee compliance with the deal. Judge Reed O’Connor in northern Texas said the inclusion of DEI considerations in choosing a corporate monitor for Boeing would “undermine confidence” that the selection was based on competency......"

? ? ? ? ? ? ? ? ? ? ? ? ? ? More on Judge O’Connor's decision in this Law360 blog post last Thursday, "DEI Provision Dooms Boeing's 737 Max Plea Deal":

? ? ? ? ? ? ? ? ? ? ? ? ? ? ?"Judge O'Connor flagged the?"government's shifting and contradictory explanations of how the plea agreement's diversity-and-inclusion provision will practically operate in this case," expressing skepticism that the government would actually choose an independent compliance monitor based on merit and talent, instead of race and ethnicity,?among other things.

? ? ? ? ? ? ? ? ? ? ? ? ? ? ?"The court is not convinced … that the government will not choose a monitor without race-based considerations and thus will not act in a nondiscriminatory manner," Judge O'Connor said. "In a case of this magnitude," the judge continued,?"it is in the utmost interest of justice that the public is confident this monitor selection is done based solely on competency. The parties' DEI efforts only serve to undermine this confidence in the government and Boeing's ethics and antifraud efforts. Accordingly, the diversity-and-inclusion provision renders the plea agreement against the public interest."

? ? ? ? ? ? ? ? ? ? ? ? ? ? ?"Judge O'Connor also noted that 'marginalizing the court in the selection and monitoring of the independent monitor as the plea agreement does undermines public confidence in Boeing's probation, fails to promote respect for the law, and is therefore not in the public interest.'......."

? ? ? ? ? ? ? ? ?(iii) hedge fund activism: Macy's response to Barrington Capital's call to make changes to improve its share price/FTI report on activism trends and notable activist campaigns:

? ? ? ? ? ? ? ? ? ? ? (a) In April of this year, Macy's Inc. announced that it had entered into this Settlement Agreement?ending a proxy fight for board seats that had been launched by investment firm Arkhouse Management (see item (iv) from April 10/24). As reported in this WSJ article yesterday, "Activist Investor Pushes Macy’s for Changes, Including New Real-Estate Unit", another activist investor, Barington Capital Group, announced yesterday in this press release that it had "built a position in Macy's, and was pushing the department-store operator to make changes to boost its slumping stock, including the creation of a separate real-estate unit within the company". Macy's responded yesterday in this press release, as follows:

? ? ? ? ? ? ? ? ? ? ? "Macy’s, Inc. today issued the below statement following the press release and presentation issued by Barington Capital Group, L.P. ?and Thor Equities LLC:

? ? ? ? ? ? ? ? ? ? ? ? ? ?The Macy’s, Inc. Board of Directors and management team are committed to delivering sustainable, profitable growth and driving shareholder value. We have consistently demonstrated open-mindedness, including with respect to regularly reviewing the Company’s strategy and capital allocation framework and exploring all paths to enhance value. We remain confident in our Bold New Chapter strategy, which continues to gain traction across all three of its pillars, and we expect to share further details regarding our progress when we report our full third quarter results and provide our fourth quarter and full year outlook. We will continue to act in the best interests of the Company and all Macy’s, Inc. shareholders and we look forward to engaging with our shareholders, including Barington and Thor, as we further advance our initiatives and execute toward our long-term goals....."

? ? ? ? ? ? ? ? ? ?(b) Earlier this month, business consulting firm FTI Consulting?published this "Activism Vulnerability Report”, highlighting "recent activism trends and notable activist campaigns." This TheCorporateCounsel.net blog post yesterday, "Activism: Current Trends & Target Sectors", contains a good summary of the report's "key takeaways":

? ? ? ? ? ? ? ? ? ? ? ? " -- Activist investor activity experienced a seasonal dip after a very active first half of 2024. This trend aligns with typical patterns. There were 56 campaigns initiated in 3Q24, closely mirroring previous years’ activity levels for the same period.

? ? ? ? ? ? ? ? ? ? ? ? ? — Board seats gained by activists in U.S. companies through September 30, 2024, remained relatively steady compared to the same period in 2023. However, the pathways to these seats shifted, with fewer board seats achieved through settlements and a slight uptick in board seats won through proxy contests.

? ? ? ? ? ? ? ? ? ? ? ? ? ?-- Activists publicly sought one or more board seats 147 times during the first three quarters of 2024, up from 112 at the same point last year. However, their success rate declined, with only 53% of these demands resulting in board seats, down from 63% in the same period last year.

? ? ? ? ? ? ? ? ? ? ? ? ? — Mid-cap companies, in particular, have seen a surge in activist interest, accounting for 25% of total campaigns in 3Q24, compared to just 10% a year earlier. This shift is not without reason: year-to-date through November 1, activists are achieving higher success rates in the mid-cap segment, with an impressive 74% of concluded mid-cap campaigns delivering favorable outcomes for activists in 2024, up from 51% during the same period last year.

? ? ? ? ? ? ? ? ? ? ? ? ? — Through 3Q24, there have been 40 campaigns with explicit demands for M&A transactions, compared to 34 during the same period last year. This persistent and increased focus on M&A may reflect activists’ interest in capitalizing on improving conditions in the current economic environment, particularly as interest rates have begun to decline and future rate paths become more predictable."

? ? ? ? ? ? ? (iv) Manulife's response to a 'mini-tender' offer from New York Stock and Bond LLC/press release of the day: Manulife?Financial Corporation disclosed yesterday in this press release?that it had been notified of an unsolicited mini-tender offer made by New York Stock and Bond LLC?, as follows:

? ? ? ? ? ? ? ? ? ?"Manulife has been notified of an unsolicited mini-tender offer made by New York Stock and Bond LLC?to purchase up to 50,000 Manulife common shares, or less than 0.003% of the common shares outstanding, at a price of?USD$12.50?per share. Manulife is in no way associated with New York Stock and Bond and does not recommend or endorse acceptance of this unsolicited offer.

? ? ? ? ? ? ? ? ? "Manulife cautions shareholders that the mini-tender offer has been made at a price below the current market price for Manulife shares.?The offer represents a discount of approximately 60.76%?and 60.80%, respectively, below the closing prices of Manulife common shares on the TSX and NYSE on?November 27, 2024, the last trading day before the mini-tender offer was commenced, and a discount of 61.43% and 61.42%, respectively,?below the closing prices on the TSX and NYSE on?December 6, 2024.

? ? ? ? ? ? ? ? ? ? "Mini-tender offers are designed to seek less than 5% of a company's outstanding shares, avoiding disclosure and procedural requirements applicable to most bids under Canadian and U.S. securities regulations. The Canadian Securities Administrators (CSA) and the U.S. Securities and Exchange Commission (SEC) have expressed serious concerns about mini-tender offers,?including the possibility that investors might tender to such offers without understanding the offer price relative to the actual market price of their securities. The SEC states that 'bidders make mini-tender offers at below-market prices, hoping that they will catch investors off guard if the investors do not compare the offer price to the current market price.'....."

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