'YOUR DAILY RESOURCE’: 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); Please NOTE the MT links below:
(i) * directors speak on virtual board meetings and other lessons boards have learned from COVID: In its ongoing "Ask a Director" series of publications, Diligent Institute (the research arm of Diligent Corporation, which provides board portal and other SaaS applications for boards) posted on its website last month, "What Lessons Have Boards Learned from COVID-19?", a compilation of responses from interviews it conducted "with over two dozen experienced directors......on how modern governance practices and behaviors are changing in response to the pandemic and its impact, which boardroom changes might be permanent, and directors’ most important lessons learned." Below are the quotes (in italics) of some of the directors (see pp. 26-31 for who the directors are) interviewed on virtual board meetings:
"Directors are working hard to adapt to virtual meetings. For many, adjusting to the dynamic of a board meeting without in-person interaction was challenging. However, as we move into the 10th month of COVID-19, directors are finding some unforeseen benefits:
"The biggest adjustment has been virtual meetings. Directors have had to go through a learning process with technology and various platforms, but it has taught us about how to have productive conversations when we can’t be with one another in person. We’ve learned how to let everyone speak without interruptions and how to signal that we want to say something. For the boards with international members, we have adjusted our schedules because of time zone differences. We have moved committee meetings to the weekends, and instead of two full days of meetings, we do three morning meetings. For global boards, it’s been an adjustment as well.”
"Virtual meetings do not come naturally to board members. We received more information beforehand than we used to. The actual meetings were more organized, with people raising hands before speaking, for example. The end result was that even though virtual meetings go against the grain, they became very efficient in terms of timing and topics as well as being much more flexible. Our chairman was able to send out meeting requests so that we could respond more quickly to any issues that arose.”
"Many directors noted that before the pandemic, they experienced stigmatization of virtual work-- especially dialing in remotely to quarterly board meetings. In fact, on many governance scorecards, boards received lower marks for low in-person attendance. However, as the pandemic has forced everyone to virtual communication, directors are realizing some of its benefits for governance, namely efficiency and the opportunity to diversify the boardroom:
"As we emerge from the pandemic, we need to think about how many board meetings actually need to be in person. I see it changing for good. I believe a percentage our meetings can take place virtually. Board meetings take time and cost money to get people there. From an enterprise perspective, it’s vital for the board to talk to leadership and come to a consensus on how much travel is needed. For internal conversations and meetings, how much sense does it make for people to travel? The pandemic has taught us that we can be much more efficient in the usage of our time.”
" The ease of video conferencing, and therefore the increased agility, will be helpful moving forward. Traditional meetings and agendas are normally scheduled as much as a year in advance, but now if there is something that comes up quickly, we can easily meet ad hoc via video conference. So, there is less rigidity in managing an annual calendar. Before the pandemic, if you dialed in virtually instead of attending an in-person meeting, it was frowned upon. Now however, this stigma is disappearing, and will likely continue to disappear after the pandemic ends. I think board members are beginning to realize that a healthy mix of in-person and virtual attendees will not affect the effectiveness of the board."
(ii) * Bank of America's 'year-round holistic shareholder engagement': At the 2020 Corporate Governance Awards last November sponsored by Corporate Secretary, BofA received the award for "Best shareholder engagement". Its 'year-round holistic' approach to shareholder engagement is described in this Corporate Secretary blog post last week, "Bank of America's year-round holistic shareholder engagement":
"At Bank of America, shareholder engagement is well established and supported across the executive and non-executive teams. For many governance teams, engagement is now a year-round activity, and it therefore helps to have such a broad team involved, including the company’s vice chair, chief human resources officer, global general counsel, head of investor relations, global ESG executive and corporate secretary. In addition, the company benefits from robust participation from its lead independent director, Jack Bovender, who is slated to retire from Bank of America’s board of directors in April 2021......In the 12 months leading up to Bank of America’s 2020 annual meeting, Bovender participated in 46 meetings with large shareholders and key stakeholders, according to the firm’s nomination materials......
"(T)he bank’s governance team contacts its largest shareholders and key stakeholders via email, phone and, prior to the Covid-19 pandemic, in-person meetings, multiple times during the year. In total, the governance team regularly connects with investors representing more than 61 percent of shares outstanding. This amounts to 61 in-person and telephone meetings with approximately 45 shareholders, according to Bank of America’s proxy statement......
"Bank of America worked hard this year to ensure it was keeping its retail shareholders up to date, engaged and, ultimately, participating in the annual shareholders meeting. This started with the development of additional resources for the bank’s dedicated retail shareholder annual meeting web page, which included videos from the board of directors, the 2019 human capital management report and other interactive information.....
"Retail investors are more likely to vote in support of management during contested resolutions, and the massive rise in first-time retail investors this year could prompt governance and investor relations teams to think about how they more tangibly encourage retail participation in the annual meeting. For Bank of America, one of the many ways its governance team aims to drive participation is through donations on behalf of each shareholder account that votes. In 2020, the bank donated more than $1 million to Water.org, representing a 5 percent increase in the number of accounts voted in 2019, according to the company’s nomination materials....."
(iii) recent human capital management disclosures: As noted in a previous item, significant pressure from investors, including the largest asset managers, for enhanced human capital management disclosure culminated in the SEC approving last summer this Final Rule which, inter alia, requires companies to include in their annual reports on Form 10-K (effective for annual reports filed with SEC after Nov.9/20) new disclosure describing the company's "human capital resources" ("HCR"). A number of resources are now available to benchmark human capital disclosure (which may be useful as 'good practice' to Canadian issuers, even if not required), based on annual reports filed since Nov./20, including this SEC Institute Blog post, "Human Capital Resources Disclosure Examples", and this client memo by leading U.S. executive compensation consultants, FW Cook, "10-K Filings Show a Variety of Approaches to New Human Capital Resources Disclosure" (see item (iii) from Dec. 16/20). Another one is this just released PwC memo, "New human capital disclosure rules: Getting your company ready", based on 149 annual reports on Form 10-K filed since November 9/20, and below is from the section at the end, "What have early filers disclosed?":
"We looked at all Form 10-Ks filed from November 9, the effective date of the new rules, through November 30, 2020. In these 149 Form 10-Ks, we noted:
"-- 78% included both qualitative and quantitative metrics
-- 95% included disclosures related to COVID-19 and the impact to human capital, the majority of which were qualitative
-- 46% disclosed DEI information (e.g., gender, sexual orientation, ethnicity, veteran status, culture, strategy, age, religion), much of which was qualitative - many companies did not include measures or objectives related to diversity at the management level, and the quantitative DEI metrics disclosed primarily included the total number of employees and gender percentages.
Other trends include:
See also this Audit Analytics blog post yesterday, "A Closer Look into Human Capital Management Disclosures."
(iv) State Street CEO's annual letter to board members: State Street Global Advisors (SSGA), one of the world's largest asset managers (with over $3 trillion in assets under management), annually sends to the board members of its investee companies a letter from its CEO outlining the issues it will be focusing on that year. On Monday, it sent out the CEO letter for 2021, revealing that this year it will be specifically focusing on, as priorities: ESG issues, climate risk and racial and ethnic diversity.
The letter is discussed in this FT article, "State Street to insist companies disclose diversity data", inter alia quoting SSGA's President and CEO, Cyrus Taraporevala:
"State Street’s $3.1tn investment arm will start voting against directors of big companies that fail to disclose the racial and ethnic make-up of their boards, a move that will increase the mounting pressure on corporations to diversify their leadership. For this year, the Boston-based asset manager is only calling on companies to report the information. But beginning in 2022, it will also vote against the chair of the nominating and governance committees of companies that do not have at least one minority board member. The threat applies to all companies in the S&P 500 and FTSE 100, many of which count State Street Global Advisors as a top shareholder owing to its large passive fund business. Starting in 2022, State Street will also demand that S&P 500 companies report the racial and ethnic composition of their entire workforce.
“As long as a company is in an index, we are going to hold that stock, so we need to make sure that those companies are doing the right things to drive value creation for our clients who are their shareholders over the long term,” chief executive Cyrus Taraporevala told the Financial Times....“The preponderance of evidence demonstrates clearly and unequivocally that racial and ethnic inequity is a systemic risk that threatens lives, companies, communities and our economy — and is material to long-term sustainable returns,” Mr Taraporevala wrote in a letter set to be sent to chief executives on Monday, outlining the specifics of its new policy....."
Note that as regards diversity, SSGA has just posted on its website this new guidance, "Guidance on Enhancing Racial and Ethnic Diversity Disclosure".
(v)
Vanguard on boardroom diversity/Vanguard on workforce diversity: Vanguard, one of the world's largest asset managers (and whose assets under management now surpass $7 trillion, as reported in this FT article this morning, "Vanguard’s assets hit record $7tn") periodically posts on its "Perspectives and commentary" website page various "Investment Stewardship Insights", each designed to "promote good corporate governance practices and to provide public companies with timely perspectives on important governance topics and key votes". In December, it posted these two brief ones, "A continued call for boardroom diversity" and "Diversity in the workplace"::
(a) Below is from the section "Our expectations on board diversity" in the boardroom diversity Insight:
"In 2020, we provide further clarity for boards to make progress as the funds’ expectations in the area continue to evolve:
"Step up board diversity efforts: We expect boards to publish their perspectives on board diversity, disclose their diversity measures, interview diverse pools of director candidates, and reflect a range of diversity.
"Invest in a prospective-director pipeline: We expect boards to identify director candidates now. To avoid disruption, boards should develop relationships with executives who lead finance, technology, human resources, marketing, accounting, audit, or investment functions. When the time comes, these executives can bring valuable subject matter expertise to boards.
"Make progress and show outcomes: We expect tangible outcomes such as formerly homogeneous boards becoming increasingly diverse and better reflecting the employee and customer composition of the companies they help lead. We may vote against certain directors when we see a lack of progress."
Note that this Insight concludes with seven "board diversity engagement questions directors should be prepared to address"
(b) Below is from the section "Our workforce diversity expectations of public companies" in the workplace diversity Insight:
"Strengthen oversight of diversity-related strategy and risks: We look for companies to publish policies on employee recruitment, retention, and inclusion. We expect them to outline the steps the board is taking to ensure that employees feel they can succeed.
"Disclose diversity measures beyond the boardroom: We seek disclosure of workforce diversity measures (gender, race, and ethnicity) at the executive, nonexecutive, and overall workforce levels. Globally, companies should reflect these and other categories appropriate to their local jurisdictions, industries, and company-specific needs."
Note that this Insight concludes with five "engagement questions directors should be prepared to address on workplace diversity"
(vi) NACD's updated Blue Ribbon Commission Report on diverse boards: In December, NACD published this "Blue Ribbon Commission Report: 2020 Update of the Diverse Board: Moving from Interest to Action" (for purchase only), an update of its 2012 Blue Ribbon Commission Report on the Diverse Board, "providing updated data, tactics for creating a diverse and inclusive boardroom, and a toolkit to check your board’s progress in creating such a boardroom." This NACD BoardTalk blog post last Friday, "BRC Implores Boards to Lead on Diversity, Again", includes a letter from the co-chairs of the Blue Ribbon Commission discussing the updated report and "delving into NACD’s reasons for refreshing it". Below are some excerpts:
"Our original NACD Blue Ribbon Commission report was written in 2012 with the hopes of its recommendations quickly becoming obsolete.....Recent developments have reinforced the importance of board diversity as a business and societal imperative....The demands of this new environment compelled us to refresh our 2012 guidance......
"The report....discuss(es) the current state of boardroom composition, suggest best practices to increase diversity on boards, and provide solutions to common challenges in diversifying the boardroom. It asks boards to consider if the board itself is representative, having directors with the appropriate skill sets—and challenges them to start having candid conversations about diversity on the board and what prevailing biases may hold back any significant changes.....
"Boards can and should proactively use board agenda-setting to ensure that conversations on diversity and human capital are addressed in every board meeting. Metrics will be key to understanding where the corporation is now, how it is progressing, and where the board may need to dig deeper. While it is beyond the scope of this report, the board needs to hold the CEO accountable for successfully implementing diversity, equity, and inclusion (DE&I) programs; tracking diversity metrics across the organization; and tying diversity to the corporation’s broader value set.
"As an aid to implementing these recommendations, this report offers a set of practical tools, examples, and case studies that boards can use to improve diversity in their own boardrooms. These tools will help boards understand investor expectations of board diversity, revamp the board refreshment process, provide oversight of the company’s DE&I program, evaluate external disclosure, extrapolate learning from the compensation committee on human capital oversight, and provide key considerations for the lead director.
"Our expectation is that every board moves from discussing this topic to taking action to drive forward progress on diversity. It is time for those who are responsible for leading to lead and to move from interest to action."
For "six suggestions for making demonstrable progress in improving diversity in the boardroom", see this NACD BoardTalk blog post yesterday by the managing director of global consulting firm, Protiviti, "Dispel the Myth of ‘Fit’: Improve Diversity on Your Board"
(vii) )Western Union's chief legal officer on D &I: Caroline Tsai, chief legal officer and corporate secretary at Western Union Co., discusses the company's diversity, equity and inclusion efforts in this recent Law360 post, "4 Worries That Will Keep GCs Awake At Night In 2021":
"Stepping Up Diversity Efforts: Amid the challenges of the pandemic, general counsel are worried that diversity, equity and inclusion efforts could take a back seat to other priorities. Caroline Tsai, chief legal officer and corporate secretary at Western Union Co., said lawyers need a renewed focus on this area now more than ever. "On one hand, there has been progress, but on the other hand, if we're honest, there's very limited progress," she said, adding that in the wake of the police killing of George Floyd last May, "there have been a lot of honest conversations, and many of those conversations continue to be led across industries with GCs engaged in the dialogue."........
"(A)gainst the backdrop of the pandemic, attorneys worry the legal profession could repeat the same mistakes it made a decade ago following the Great Recession, when some diversity numbers fell before only recently starting to recover. As a result, legal organizations implemented programs focused on supporting lawyers in marginalized groups with their career development. In corporate legal departments, top in-house lawyers from a dozen global financial institutions including JPMorgan Chase & Co. andBank of America outlined a list of goals for themselves and their peers in an open letter." It has to be a top priority, and we have to have a deliberate focus on it, and we can't step away from it during the pandemic," Tsai said. "In fact, I would argue you actually have to double down on those efforts in 2021."
(viii) responding to press reports of merger discussions/press releases of the day: Bloomberg yesterday reported in this (now updated) article, "Canada’s Couche-Tard in Talks to Buy French Grocer Carrefour", that Alimentation Couche-Tard and Carrefour SA were in discussions regarding a possible acquisition transaction. Yesterday, Couche-Tard responded to the report in this press release, as follows:
"Alimentation Couche-Tard Inc. confirms it has initiated exploratory discussions with Carrefour SA regarding a potential friendly transaction, the terms of which are still subject to discussion. There can be no certainty at this stage that these exploratory discussions will result in any agreement or transaction. Couche-Tard will keep the public informed of any material developments in this respect if and when it is legally required or otherwise appropriate for the Company to do so."
Carrefour SA responded to the report with this separate statement:
"Carrefour has been approached, in a friendly manner, by the Alimentation Couche-Tard group, with a combination project. Discussions are very preliminary."
(ix) press release of the day: Intel Corp. announced this morning in this press release the appointment of an outsider as new CEO, as follows:
"Intel today announced that its board of directors has appointed 40-year technology industry leader Pat Gelsinger as its new chief executive officer, effective Feb. 15, 2021. Gelsinger will also join the Intel board of directors upon assuming the role. He will succeed Bob Swan, who will remain CEO until Feb. 15. Today’s announcement is unrelated to Intel’s 2020 financial performance. Intel expects its fourth-quarter 2020 revenue and EPS to exceed its prior guidance provided on Oct. 22, 2020......
"Gelsinger is a highly respected CEO and industry veteran with more than four decades of technology and leadership experience, including 30 years at Intel where he began his career....“After careful consideration, the board concluded that now is the right time to make this leadership change to draw on Pat’s technology and engineering expertise during this critical period of transformation at Intel, said Omar Ishrak, independent chairman of the Intel board.....Most recently, Gelsinger served as the CEO of VMware since 2012......."
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